The infant crypto market has been developing radically in the first eight months of 2018. This concludes about 96 new crypto hedge funds and venture capital funds launched according to the findings of a research.
At the average rate of three opening every week, the study expects 165 more to launch by the end of this year. This will be a record high in it’s delicate and nubile history, making 2018 the largest year for crypto funds.
The current total of crypto funds is 466. But, this total has been a product of at least 8 years worth effort and investment. Better yet, more than half of these launched in the past 18 months. The exponential growth in investment firms follows rising popular interest in cryptocurrency last year, a growth in investment vehicles and an influx of institutional capital. This has been supported by exceptional awareness and spread of awe and wonder around blockchain technology among the youth of the better developed economies.
The popularity bitcoin in particular gained has resulted in a mushroom growth of supporting business and an entire network of technologies that assist cryptocurrencies to prop up. Josh Gnaizda, the founder and CEO of CryptoFundResearch said:
The growth began when Bitcoin broke through $5,000 and in the run-up at the end of the year
Nine funds opened in San Francisco, with a further six opening in New York. Singapore, already a center for cryptocurrency projects like VeChain (VET) and Litecoin (LTC), saw five open for business whereas London had four.
However, the growth has remained central to the global west. The global east on the other hand remains aloof with dwindling policies and unsure systems. Althought the second highest number of cryptofunds i.e 34 crypto funds, lies in China (predominantly in Hong Kong), far fewer launched in the past seven months than in previous years.
This is co-related to the regulatory uncertainty in Beijing; with the government banning exchanges and ICOs back in September of last year. Considering the recent drop in new Chinese crypto funds, the study suggests businesses have moved to crypto-friendly jurisdictions and unregulated areas. Gnaizda said:
There’s no way to operate a hedge fund in China legally at the moment, What is interesting is the venture capital market hasn’t been affected to the same degree.
Chinese-based funds like Huobi are working with government subsidies. This shows they’re still interested in trying to cultivate blockchain startups despite conditions.
Most crypto funds are small scale operations; the vast majority have less than five employees, with many comprised of the founder and one or two additional members of staff. Only 28 had more than 25 employees and these were generally VCs, who invest in other businesses as well as in cryptocurrency. This means they are small in terms of resources employed and human resource requirements, yet they are highly efficient.
According to Gnaizda, however, there’s a real difference in how many of these hedge funds work. Some crypto fund managers have worked in existing asset markets and jumped into cryptocurrency, anticipating an oncoming surge in demand. He says:
These fund managers are far more optimistic for crypto than their investors
The story of the four Harvard students setting up their own fund isn’t unique: a growing majority are run by people under the age of thirty, many who have a lack of investment management experience. This adds to the reason why this mushroom is taking over the world tech news and recipient attentions.
Out of the estimated $7-9 billion assets controlled by funds, half are controlled by the top dozen by giants, like Sequoia Capital and Pantera Capital. The remaining 454 hedge funds control an average of $5-10 million which is not enough capital to create a sustainable fund. But, he argues that younger people who fully-understand the tech may have a crucial advantage. He added:
But, we haven’t seen how they’ll perform yet compared to more experienced fund managers
If the volatility rate declines potential returns could become smaller, making it harder to attract capital. The markets are bearish despite high investor faith and enthusiasm around the industry. This may weaken the spotlight that many firms have enjoyed in their quick and tidy propping up within the system.
Crypto hedge funds have grown off the back of exciting new markets. As reality sets in, many of these funds will have to justify themselves. But, the continuing market intrigue and popularity on the part of long-term investors should give retail crypto clients some reason for optimism, despite the current market conditions.