Cryptocurrency, as a concept, was meant to be a tool for financial freedom, untethered from a sovereign entity, one that was pegged to be a method of payment for the future. Fast forward a decade since the emergence of Bitcoin [BTC], the decentralized currency has made leaps, less as a financial tool and more as an investment vehicle.
Funds centered around virtual currencies have been growing, especially post the December 2017 rally, but the subsequent crypto-winter looks to have petered out the growth. Research conducted by Crypto Fund Research indicated that cryptocurrency funds have declined by just shy of 40 percent from 2018 to 2019. The study suggested that funds were divided almost equally between Venture Capitals and Hedge Funds, with Private Equities taking less than 3 percent of the total.
The number for the current year, based on the analytics firm’s projection, would equal 2014 when the price of Bitcoin was around $600. After the lowly years between 2014 and 2016, the funds shot up in number when the BTC price began rallying in 2017, topping at 239 in 2018, before falling down to 145 in 2019.
In light of this Crypto Fund Research stated:
“In addition to the launch of new VC and crypto hedge funds, we expect existing hedge funds to incorporate cryptocurrencies in their portfolios. Likewise, existing VC firms will continue to add blockchain investments as well as launch separate blockchain funds.”
The assets under management for these funds, however, are on the lower end of the spectrum, attesting to the volatile nature of the financial asset. Crypto Fund Research indicates that 53 percent of the funds have less than $10 million worth of assets under management [AUM]. On the other end of the scale, only 5.25 percent of the same had AUM of $100 million or more.
Galaxy Digital Assets, Alhpabit Fund, and Polychain Capital are notable fund with over $100 million AUM.
Despite the total number of funds dropping down from 2018, the collective AUM has seen significant growth in 2019. Since the beginning of the year, the total valuation of the cryptocurrency funds has shot up by 40.54 percent to now total $14.35 billion, in Q1 of 2019 alone. Interestingly, barring one quarterly dip from January 2018 to April 2018, the AUM has been on a constant rise.
Crypto Fund Research pegs three reasons for this increase, new crypto funds entering the fray, despite the year-on-year drop, increase in net inflows to existing funds and portfolio assets changing valuation.
Manpower does not seem to be a major hurdle for the crypto-fund industry, with 55 percent of the funds operating with a capacity of five employees or less and only 5.84 percent of them having more than 25 employees.
Unsurprisingly, most of these funds were based in the United States, while China (including Hong Kong) and the United Kingdom took the next two spots. Other notable homes for cryptocurrency funds were Singapore, Canada, Australia, and Germany. The report highlighted Russia, Eastern Europe, and the Cayman Islands as up-and-coming hubs.
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