Digital Currency Revolution Series: Quick Glance at Landscape of Crypto-Hedge Fund

Bitcoin upholds its value as a store of value digitally, asset with non-sovereignty, immutable, inflation-free features. The regulatory barriers, a potential dearth of dollar globally and the lingering uncertainty in the international trades has been affecting the crypto markets adversely. Many investors began perceiving Bitcoin as an alternative investment or as a high risk and high return portfolio proposition to compliment or hedge more conventional positions. 

It is quite natural that outflow of money is certain out of crypto also, when the global investment sentiments beaming-up with the series uncertainties, as investors adopt a risk-off approach until market conditions calm down.

Well, we’ve recently glanced at the overview of the global crypto hedge fund risks that are published in our recent posts referring to the PwC’s report.

The report also offers the landscape and the insights into quantitative elements such as liquidity terms and performance, as well as qualitative aspects such as best practice with respect to custody and governance. 

As per some important emphasis of the report, the key takeaways are highlighted: 

• there are 150 active crypto hedge funds collectively managing US$1bn AuM (excluding crypto index funds and crypto venture capital funds).
• Over 60% of these funds have less than US$10m in AuM with fewer than 10% managing over US$50mln. 
• The average crypto hedge fund AuM as of Q1 2019 is US$21.9 million.
• 36% of funds surveyed use or can use leverage and 74% can take short positions. 
• Of the funds surveyed, 44% pursue discretionary strategies, 37% quant and 19% fundamental. 
• The median AuM of funds as of Q1 2019 (US$4.3m) is 3X that of the median AuM at fund launch (US$1.2m - January 2018), which indicates that funds have been relatively successful at fundraising despite difficult market conditions. 
• Funds tend to be domiciled in the same jurisdictions as traditional hedge funds, with the top three jurisdictions for the fund entity being the Cayman Islands (55%), the United States (17%) and the British Virgin Islands (BVI) (13%). 
• 52% of funds use an independent custodian, yet only 25% have independent directors on their board.
• Typical crypto fund investment professionals have between 3-4 years of investment management experience.

Since the hedge funds’ prime objective is to outperform the market, they would usually be aggressive in risk appetite and expected to be prudent enough to generate high yields irrespective of the trend of the market. 

However, the bearish rout in 2018 caused the gloomy returns for crypto hedge funds business, contrary to this a report suggests institutional investors inclination towards the gamut of crypto-hedge funds.