Michael Arrington, founder of TechCrunch and serial entrepreneur, has announced that he will launch a $100 million cryptocurrency-based hedge fund in the near future. The fund, which has been called ‘Arrington XRP Capital’, will participate in initial coin offerings, purchase cryptocurrency assets, and invest in cryptocurrency startup companies.
In the blog post announcing the formation of Arrington XRP Capital, Arrington wrote that despite being a mere crypto “enthusiast” just a year ago, he has been inspired to make some drastic personal changes. “I have altered my career path to focus entirely on cryptocurrencies and related technologies… With this new fund I’m signaling my intent to spend the rest of my career on cryptocurrencies.”
In an unprecedented move, the fund will be denominated by Ripple (XRP) tokens. According to a report from BizJournals, XRP tokens will be used for “all investments, distributions and salaries at Arrington’s fund.”
The Ripple network has no official affiliation with Arrington XRP Capital, but the coin (and its network) have been the crypto-of-choice for several other high-profile partnerships in recent weeks, including a collaboration with American Express and Santander. Axis Bank (India), Standard Chartered (Singapore), and Rakbank (UAE) also announced last week that they would be adopting the RippleNet as a means of transferring funds across borders.
An Increasing Number of Crypto Hedge Funds are Appearing – and Fast
In addition to CME’s plans to launch Bitcoin futures trading options next month, some analysts cite the steep rise in cryptocurrency-based hedge funds as one of the factors contributing to the explosion of the price of Bitcoin in recent months.
Arrington’s fund is one of the latest in a growing list of cryptocurrency-based hedge funds that is now over 120 funds long. For perspective: at the end of 2016, there were only six such funds; at the end of August of 2017, there were only 55. A CNBC report in October citing data from Autonomous Next revealed that 37% of these funds use traditional venture-capitalist type strategies and, at the time, collectively managed about $2.3 billion.
In September, legendary hedge fund mogul Mike Novogratz announced plans to launch a $500 million cryptocurrency-based hedge fund; if the fund gets off the ground successfully, it will be the largest of its kind to date.
Are We in a Bubble?
In a recent Guardian report, Senior Market Analyst at ETX Capital Neil Wilson acknowledged that CME’s adoption of Bitcoin has significantly contributed to the coin’s legitimacy as a tradeable asset.
However, despite this “legitimization” of Bitcoin, Wilson warned that the cryptocurrency should not be thought of as a traditional asset. “The only way it has value is if the next guy is willing to pay you more for it – the greater fool. With no intrinsic value to bitcoin, it’s hard to see this as anything other than a giant speculative bubble.”
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It’s true that Bitcoin is not a commodity in the way that gold, crude oil, gasoline, or wheat are. However, if we think about it this way, no currency really has any sort of intrinsic value; the US dollar, Chinese yuan, and pound sterling only have value because we collectively believe that they do, and behave accordingly. Bitcoin is not a commodity, though in some respects it is being treated as such. It is a means of payment.
We may be in a bubble; a giant speculative bubble, or a smaller bubble that will temporarily pump up the price of BTC in the run-up to the CME launch. However, at over $180 billion, Bitcoin’s market cap has now exceeded the market caps of Disney, IBM, and McDonalds. Despite known issues with scalability, the Bitcoin network is becoming increasingly popular as a means-of-payment. While the currency will undoubtedly face setbacks in the future, it’s getting harder to deny the fact that Bitcoin has arrived.