The number of cryptocurrency hedge fund launches has increased dramatically in 2018 despite a bearish market, finds a new study.
According to Crypto Fund Research, crypto funds now constitute 20 percent of the total hedge fund launches in 2018. The industry witnessed 90 cryptocurrency fund launches by the end of the third quarter of this year, and the number could go as high as 120 by the end of Q4. That is 1.69 percent more than in 2017 and 471 percent higher than in 2016. Overall, there are 600 hedge funds projected to go live this year.
“The number of crypto hedge funds has skyrocketed since the beginning of 2017. Two-thirds of all currently operational crypto funds have launched in the last seven quarters, through Q3 2018,” the report said.
Crypto Fund Research also points out that crypto hedge funds are a part of some 622 crypto funds, a number which also includes funds based on venture capital and private equity. Together, they represent assets worth $4 billion.
Bearish Market a Potential Entry Point
The sudden influx of new crypto funds in the hedge fund industry comes at a time when the market is in a strong bearish bias. The crypto market capitalization has dropped by more than 70 percent this year since establishing its all the high in late 2017. Incidentally, many new crypto funds were launched during the market uptrend last year. A majority of them reported more than 50 percent in losses, according to research by Autonomous Next published in Q2 this year.
Joshua Gnaizda, the founder of Crypto Fund Research, believes the new crypto hedge launches are far from being stopped despite unfavorable market conditions. He said:
“In the midst of 2018’s decline in traditional hedge fund launches, crypto hedge funds are a notable aberration. Cryptocurrency prices have been in a bear market for the better part of the year and regulatory uncertainty persists in much of the world […] While we don’t believe the rate of new launches is sustainable longer-term, there are currently few signs of a significant slowdown.”
Crypto’s Q3 performance, however, has seemingly established its bottom. Bitcoin, for instance, was able to form a strong support area below $6,000, leading to theories that its value would not go down below the level. It is believed that many institutional investors have entered long positions around the same level, the latest being Yale University’s $3o billion endowments investing in two cryptocurrency hedge funds, which is why hedge fund managers are inclined to include crypto assets in their portfolio.