The recent bitcoin price decline and subsequent bear market put a severe dent in profit projections for hedge funds that invest in cryptoassets, but it has not prevented the sheer number of these cryptocurrency funds — and the size of their assets under management (AUM) — from swelling to record levels.
According to new research from cryptocurrency analytics firm Autonomous Next, the number of cryptocurrency funds has exploded to more than 300 in 2018, with 312 up-and-running when the report was completed earlier this month.
That’s a 24 percent increase from the beginning of the year when 251 funds were operational. It’s also a 457 percent surge from the 56 funds that were active in 2016.
The majority of new funds opened in the second quarter. As CCN.com reported, just 20 new firms entered the space during the first quarter, and nine others shut their doors due to market headwinds that made it difficult for even large funds to attract new investors.
Unsurprisingly, the researchers found that the number of cryptocurrency funds is highly correlated with bitcoin appreciation. However, the rate of new funds has largely endured this year, despite declining cryptocurrency prices, largely due to a flurry of activity surrounding initial coin offerings (ICOs).
Together, the 312 cryptocurrency funds collectively manage between $7.5 billion and $10 billion in assets, though this capital is highly concentrated among the largest funds. According to the report, the 10 largest funds account for 43 percent of the industry’s investment capital, while the top 50 hold 80 percent.
These larger funds have the capital and resources to flourish — or at least survive — during prolonged bear markets, but the report warns that firms with less than $25 million in AUM could face an uphill battle in flat or down years.
Notably, this increase in funds has correlated with growing diversity in investment strategies utilized by these firms. This not only provides investors with a wider array of options but is also perhaps a sign that the nascent industry is maturing.
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Last modified: March 4, 2021 4:05 PM