Cryptocurrency hedge funds popped up like weeds throughout the year 2017 (at least 167 of them), and for a good reason–the average crypto-based hedge fund grew a revenue of 2,700 percent over the course of last year.
However, hopeful investors who bought into one of these funds at the beginning of this year aren’t quite as fortunate as those who joined the party in 2017. The Financial Times reported that so far this year, cryptocurrency hedge funds are down by an average of 35 percent. Only 8 percent of the top 25 crypto hedge funds have reported any profits at all since January.
The effect on the industry is palpable. As of April, nine crypto hedge funds had shut down all operations.
Indeed, the lack of success in the crypto hedge fund sector is a reflection of the doldrums that have stricken the entire crypto industry since the beginning of the year. The prices of Bitcoin and Ethereum have fallen more than 50 percent since January 1, 2018; the total market capitalization of all cryptocurrencies is roughly a third of what it was at the beginning of the year.
PwC Crypto Lead: “Crypto Markets [Will] Remain Volatile”
Henri Arslanian, PricewaterhouseCoopers cryptocurrency lead, told the FT that he believes this type of pattern is all par for the course: “I expect the crypto markets to remain volatile for the foreseeable future.”
Further, he believes that “while retail investors may see volatility in the crypto markets as a downside, many crypto funds see it as an opportunity.” Indeed, many savvy investors and investment institutions make money by ‘buying the dip,’ however, with the current ‘dip’ in its seventh month, it can be hard to know where exactly the bottom is.
’Massive Influx’ of Institutional Investors Could Alleviate Volatility
Some positive things have happened, at least for BTC and ETH. Last week, the SEC announced that neither Bitcoin nor Ethereum would be legally classified as a security. In the wake of the announcement, the price of Ethereum briefly spiked up by 9% in response. The price of Bitcoin also saw a temporary boost.
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This seems to indicate that the lack of regulatory clarity in the United States is having a negative effect on the cryptocurrency markets. Bitcoinist also reported that a lack of appropriate custodial tools and other market apparatus could also be keeping prices low.
While retail investors are indeed affected by these factors, Arslanian argues that the regulatory mishmash and the absence of custodial tools are keeping out a vital force that could help stabilize the markets: institutional investors.
Arslanian said that once these issues are appropriately addressed by regulators and innovators, a possible influx of large investors into the crypto industry could have a critical, long-lasting effect on the market that would be far more powerful than any short-term price fluctuations.
Some major players have entered the market in spite of the issues at hand. Goldman Sachs and Coinbase have both launched products geared toward institutional investors. Still, it will be some time before the ‘massive influx’ that might just save the day.
Announcing Coinbase Custody: A Digital Currency Custodian For Institutions https://t.co/HaH8udz7Sa
— Coinbase Custody (@CoinbaseCustody) November 16, 2017