Crypto Hedge Funds Start Closing Down

  • Crypto funds unable to reap returns
  • Investors fear regulatory actions

The first quarter has been one of the bloodiest quarters for the crypto space. According to Bloomberg, about nine cryptocurrency-centered hedge funds have closed their operations either due to the sharp falls in the cryptocurrency market as well as citing regulatory risks.  

As per Fintech analysis firm Autonomous NEXT, the number of crypto-focused hedge funds increased two folds from October last year to February 2018. The spike in cryptocurrency prices had led many hedge funds to enter the crypto space. Moreover, an investment fund was a gateway for institutional investors to be part of the crypto mania.

Crypto funds unable to reap returns

Bitcoin has lost half its value since the start of the year and the overall cryptocurrency market capitalization has also seen a drop 56%. The recent regulatory actions have put a brake on investments in the hedge fund market. Also, hedge funds have struggled this year to reap returns due to the steep falls in crypto prices.

Kyle Samani, co-founder of Multicoin Capital, told Bloomberg “New capital has slowed, even for a higher-profile fund like ours,”

The funds that have closed include Crowd Crypto Fund and Alpha protocol. Alpha Protocol revealed on its website that it completed the refund process to its investors by 31st March 2018. The website stated,

“Considering the potential regulatory and market risks, AlphaProtocol has decided that the best approach is to refund the private sale contributors.”

Alpha Protocol

In the case of Crowd Crypto, it has shut down all its online presence such as its social media accounts. In January this year, a leading crypto hedge fund - Polychain Capital - also halted its plan to go public in Canada.

Investors fear regulatory actions

Rick Marini, the founding partner at Protocol Ventures, stated:

“People are able to leverage good returns last year to try to raise money this year, but this year is going to be different.”

Nick Marini

According to Eurekahedge Cryptocurrency Hedge Fund Index, crypto hedge fund returns are down by 23%, whereas last year they were up by 1,700%. As cited by Bloomberg, Lex Sokolin - Global Director of Fintech Strategy at Autonomous Research LLP, said that about 10% of all crypto funds could shut by the end of this year.

Recently, anonymous sources revealed that Securities and Exchange Commission (SEC) is examining about 100 crypto hedge funds. In some cases, the SEC’s scrutiny is severe where hedge funds have received subpoenas from the regulator. As for now, the crypto hedge fund industry is in stagnation, where only a crypto wave akin to last year can draw in investors interest.

Coinbase Commerce Now Lets Merchants Accept USD Coin (USDC)

On Monday (May 20), Coinbase announced that "Coinbase Commerce", which provides non-custodial cryptocurrency payment solutions, now allows businesses to accept fully dollar-collateralized stablecoin USDC.

History of USDC

As CryptoGlobe reported on 26 September 2018, "USDC Coin" (USDC for short) was launched on that day by Goldman-funded FinTech startup Circle Internet Financial (better known as "Circle"). This is a regulated fully-collateralized dollar-backed stablecoin that was originally announced on 16 May 2018. USDC is based on an open source fiat stablecoin framework developed and governed by the CENTRE project.

Circle said at the time that the problems with existing fiat-backed solutions (such as Tether's USDT) were that they "have lacked financial and operational transparency, have operated in unregulated jurisdictions with unknown banking and audit partners, and have been built as closed-loop ecosystems and closed proprietary technologies."

In contrast, Circle's USDC stablecoin deals with these issues by "providing detailed financial and operational transparency" and "operating within the regulated framework of US money transmission laws, reinforced by established banking partners and auditors." USDC tokens are ERC-20 compatible (meaning that they run on the Ethereum blockchain); they are minted, issued, and burnt/redeemed based on network rules defined by CENTRE. 

Coinbase's Previous Involvement With USDC

On 23 October 2018, Circle announced that Coinbase (another member of the CENTRE consortium) was making USDC available to its customers on Coinbase Consumer and Coinbase Pro, and that customers could "tokenize dollars into USDC and redeem USDC into dollars through both Circle and Coinbase."

Then, on May 14, Coinbase said via a blog post titled "Expanding USDC crypto trading globally" that:

  • It was making USDC trading available on Coinbase Consumer and Coinbase Pro in 85 countries.

  • It was doing this to help "accelerate the global adoption of crypto trading" and to provide wider access to "a stable store of value."

  • There are more than 300 million USDC tokens currently in circulation today, and that USDC is supported by 100+ ecosystem partners.

  • Stablecoins "have the potential to materially improve the lives of people in countries where inflation is eroding wealth." 

  • Coinbase serves customers in 103 jurisdictions.

Coinbase Commerce and USDC

Coinbase Commerce was launched on 14 February 2018. Coinbase described Coinbase Commerce as a new service that "enables merchants to accept multiple cryptocurrencies directly into a user-controlled wallet," and that in contrast to its previous merchant products, it was "not a hosted service, so merchants have full control of their own digital currency." Four cryptocurrencies were supported back then: Bitcoin (BTC), Bitcoin Cash (BCH), Ether (ETH), and Litecoin (LTC).

Coinbase Commerce can be "directly integrated into a merchant’s checkout flow or added as a payment option on an e-commerce platform." Initially, the only e-commerce platform supported was Shopify, but on 6 August 2018, support for WooCommerce was added.

Yesterday's blog post said that now Coinbase Commerce has added support for stablecoin USDC, thereby allowing "businesses to accept payments online in the same way they’re able to accept cash in-store." 

Here are a few things to note about Coinbase Commerce:

  • "Coinbase Commerce doesn’t charge any fees to process payments."
  • "Coinbase Commerce accounts are completely separate from Coinbase accounts."
  • "You can use the withdraw functionality to send cryptocurrency to an address associated with your Coinbase account."

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