Reality Shares, a California-based investment company known for being the first to start selling blockchain ETFs (exchange-traded funds), is setting up a new cryptocurrency-based hedge fund, according to Business Insider.
The fund will be worth a maximum of $100 million, according to a person familiar with the matter. The company has already raised a quarter of that.
An ETF is an arrangement whereby a dedicated fund owns an asset and divides it up into shares which people can purchase and trade on a public exchange. These shares do not represent ownership of the asset, so investors cannot claim it in exchange for them. They can, however, claim some of the profit made by the fund’s activities.
Reality Shares’ ETFs were approved and listed on the Nasdaq stock exchange. They are based on blockchain-based businesses, although the US Securities and Exchange Commission told the firm to remove the world ‘blockchain’ from the title.
The company has attracted around $100 million worth of new business since launching these contracts back in January 2018.
There had been a race to be the first to win approval from the SEC. Cameron and Tyler Winklevoss, owners of cryptocurrency exchange Gemini, have been trying to get approval for Bitcoin-based ETFs since 2013, and have been rejected twice so far. New York blockchain company SolidX Partners tried last year, then withdrew its application, then filed another one in June 2018, which is currently being assessed.
The New York Stock Exchange applied for permission to list ETFs based on Bitcoin futures in January 2018. This would be a financial derivative based on a financial derivative because Bitcoin futures are also complicated investment contracts that do not actually impart ownership of Bitcoin to investors. This has also not been approved to date.
Outside of the US, cryptocurrency exchange Huobi launched its own cryptocurrency ETF in April 2018 and said that ten million people signed up within 30 minutes of launch.
Cryptocurrency hedge funds
A hedge fund is an investment partnership catering to people that invest large amounts of money. The hedge fund industry as a whole was worth $3.2 trillion with approximately 10,000 entities extant as of August 2017, according to market analysis firm eVestment. In terms of cryptocurrency, a research company called Crypto Fund Research recently found that there are currently 466 hedge funds focused on this sector.
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Of these, 130 were created over the whole of 2017, and 96 were created in 2018 as of the 31st of July. In June that figure had been 61 – 35 new entities being spawned in the space of two months is remarkable because cryptocurrency prices generally fell during that period.
However, The Financial Times reported in June that the profitability of most funds was down by 35 percent by June, with nine having been closed by April.
Examples of launches this year include a 40 million euro fund launched in April by German firm BITREAL Capital, a $300 million fund launched in June by American firm Andreessen Horowitz and a $10 million effort created by Japanese communications company Line.
The majority of cryptocurrency-based hedge funds do not reach values $100 million (28 of 466). The new venture of Reality Shares will thus be one of the bigger ones.