Polychain Capital, which is widely considered the largest crypto hedge fund, has raised $175 million for a venture capital fund with a seven-year lockup period. The funds are expected to go toward taking equity stakes in struggling crypto projects, its founder and CEO Olaf Carlson-Wee said.
Last year, Polychain became the first crypto-linked fund with more than $1 billion in assets under management, including cryptocurrency coins and tokens, equity in companies and unspent cash pledged from investors.
However, 2018 price dips have been bad news for Polychain and other crypto investment vehicles, forcing many to shut and others to explore creative ways to stay afloat.
Eurekahedge Crypto-Currency Hedge Fund Index reports that 42 cryptocurrency funds have closed shop since the beginning of 2018. Also 70 percent of the 740 funds it tracks made losses of about 70 percent on average last year.
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Bear market is putting pressure
“This asset class has always been incredibly volatile. It’s grown in bits and starts, with very rapid increases and then bear markets… When I launched Polychain Capital I was prepared for this,” Polychain CEO said.
Crypto firms have turned to venture capitalists as the collapse in digital asset values over the past year has made new investments through ICOs, which were once plentiful, drying up for blockchain-related startups including the so-called crypto hedge funds. Retail investors who poured money into crypto assets in 2017, seeking to benefit from a sector-wide boom, are now trying to head for the exits — prompting funds to find other alternatives to stay the course.
In addition, matters for crypto funding worsened as ICOs activities have been under pressure globally as regulators crack down on many projects for conducting unregistered securities offerings.
“Funds have silently transformed from hedge funds into venture funds as their liquid portfolios shrank in value, making a very high percentage of AUM illiquid,” Kyle Samani, managing partner at Multicoin Capital Management told Bloomberg.