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Bloomberg
The reckoning is starting for crypto hedge funds.
Demand and profits are drying up at many of the more than 150 funds that popped during 2017’s spectacular surge in Bitcoin—which brought cryptocurrencies to the attention of scores of institutional and individual investors. This year’s 50 percent plunge in the value of Bitcoin has many investors thinking twice. At about $7,000, the currency is at its lowest since November.
“New capital has slowed, even for a higher-profile fund like ours,†Kyle Samani, co-founder of Austin, Texas-based Multicoin Capital, said. Multicoin, whose fund went live in August, manages about $50 million in assets.
At least nine funds have been shuttered, with some, such as Crowd Crypto Fund, deleting websites, Twitter and Facebook accounts. Alpha Protocol, a distributed fund, posted this message on its site: “Considering the potential regulatory and market risks, AlphaProtocol has decided that the best approach is to refund the private sale contributors.â€
Polychain Capital, likely the largest hedge fund in the sector with about $250 million under management as of September, decided in January against going public in Canada.
Billionaire Mike Novogratz scrapped plans to launch a crypto fund in December, shifting his efforts to a merchant bank focused on cryptocurrencies and ventures based on related technologies.
Gains of more than 1,000 percent at some funds in 2017 helped spread the euphoria that made Bitcoin the topic of holiday gatherings and mainstream news coverage. This year has been a different story, with returns already down 23 percent, according to Eurekahedge Crypto-Currency Hedge Fund Index.
Up to 10 percent of all crypto funds could close by year-end, according to Lex Sokolin, global director of fintech strategy at Autonomous Research LLP. Rick Marini, founding partner at Protocol Ventures, which invests in crypto funds including Multicoin and Polychain, thinks that only 50 funds will be able to raise enough outside capital to be sustainable enough to serve institutional investors. The rest will be in trouble.