The cryptocurrency hedge fund industry has significantly expanded in recent years. The meteoric rise in the price of bitcoin has solidified the success of many of these hedge funds, with reports suggesting that cryptocurrency hedge funds are outperforming their mainstream counterparts
The cryptocurrency economy has become increasingly embedded in the traditional financial markets, including the emergence of several cryptocurrency hedge funds in recent years.
Eurekahedge was one of the first companies to offer cryptocurrency-based hedge funds, launching its Crypto-Currency Fund Index in 2013. Despite the cryptocurrency bear market of 2014 and the immense volatility within the cryptocurrency markets, Eurekahedge has managed to perform with an average annual return of 123.25%. Eurekahedge’s Crypto-Currency Fund Index tracks the performance of several different actively managed cryptocurrency hedge funds that are predominantly invested in bitcoin and ethereum, in addition to several other prominent cryptocurrency projects.
Eurekahedge has recently stated that “cryptocurrency hedge funds have outperformed the average global hedge fund, traditional FX hedge fund strategies, the MSCI ACWI and the S&P GS Precious Metals Index over all periods.”
Pantera Capital was founded in 2013, and claims to have been the first U.S. bitcoin investment firm. The company emerged out of Pantera Capital Management LP, a San Francisco-based investment firm that was founded in 2003. Pantera boasts a portfolio that includes many of the most successful companies in the cryptocurrency economy, including blockchain-based remittance provider Abra, major bitcoin exchange Bitstamp, bitcoin payment gateway Circle, and major altcoins Ripple and Zcash – both of which have seen dramatic price rises this year.
Another high-profile entrant in the cryptocurrency hedge fund market is Polychain Capital, which was founded last year by Olaf Carlson-Wee, a former employee of Coinbase. In September 2016 Polychain Capital generated media attention following its successful $10 million USD funding campaign conducted with venture capital firms Andreessen Horowitz and Union Square Ventures.
Polychain capital holds actively managed portfolios of blockchain assets. Carlson-Wee discussed Polychain’s portfolio with Forbes, stating that “There will be many types of assets codified into the blockchain, and they are all not just going to be on the Bitcoin blockchain – it’s going to be a number of different assets here. And the best way to invest in that is with a diversified portfolio.” Since launching, there has been a high demand for Polychain Capital’s digital assets.
Despite the high performance of the cryptocurrency hedge funds, some cryptocurrency adopters have argued that the increasing presence of major investment firms within the virtual currency space undermines the decentralization of the bitcoin markets.
With bitcoin’s price continuing to rise, we can likely expect further proliferation of cryptocurrency hedge fund in coming years.
Would you invest in a cryptocurrency hedge fund?
