In the first three quarters of 2018, 90 cryptocurrency hedge funds were launched, expecting to be on track to reach 120 for the fiscal year, according to Crypto Fund Research. The record rate of new crypto hedge fund launches challenges traditional thinking that hedge funds tend to launch most frequently in bull markets. Leading cryptocurrencies, like Bitcoin and Ethereum, are down 50% or more YTD 2018.
According to Hedge Fund Research, approximately 600 hedge funds, both traditional and crypto funds, are expected to launch in 2018. 20% of these, will be crypto hedge funds. Crypto hedge funds invest largely, or exclusively, in cryptocurrencies like Bitcoin, Ethereum, and Ripple. Some also invest and trade in initial coin offerings (ICOs). The amount of crypto hedge funds are surely on the rise, In 2017 they accounted for 16% of all launches, up from less than 3% in 2016. Two thirds of all currently operational crypto funds have launched in the last seven quarters, through Q3 2018.
“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,” said Joshua Gnaizda, founder of Crypto Fund Research. “Yet these seemingly unfavorable market conditions have not deterred managers from launching new crypto hedge funds at a record pace. While we don’t believe the rate of new launches is sustainable longer-term, there are currently few signs of a significant slowdown.”
While crypto hedge funds are now one of the fastest growing hedge fund strategies, crypto funds still make up a small percentage of the overall industry, both in terms of raw numbers as well as assets under management. According to Crypto Fund Research, there are currently 303 crypto hedge funds. Crypto-focused hedge funds comprise just 3% of the more than 9,000 hedge funds currently in operation. Crypto hedge fund assets, at less than $4 billion, are also still quite meager. The global hedge fund industry, by comparison, manages more than $3 trillion.
Though about half of the crypto hedge funds launched this year are based in the US, the rise of the crypto fund is a global phenomenon. Australia, China, Malta, Switzerland, The Netherlands, and the United Kingdom have all seen multiple crypto hedge fund launches in 2018.