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 Preparing for Stock Market Listing as Early as This Year: Report

San Francisco-based cryptocurrency exchange Coinbase has reportedly started preparing for a stock market listing that could come as early as this year.

The move would make Coinbase the first major U.S.-based cryptocurrency exchange to go public, but the listing would require the U.S. Securities and Exchange Commission’s (SEC) blessing. According to Reuters, one source claimed the exchange is considering a direct listing instead of a traditional initial public offering (IPO).

While in an IPO new shares are created, underwritten and sold to the public, in a direct listing no new shares and created and only outstanding shares are sold, with no underwriters involved. Reuters quoted three people familiar with the matter, who requested anonymity because the listing preparations are reportedly confidential.

Coinbase has not yet registered its intention to go publish with the SEC, but has already reached out to investment banks and law firms. The cryptocurrency exchange was valued at $8 billion in its latest private fundraising round in 2018.

It was founded in 2012 and now has over 35 million users, allowing them to trade various cryptoassets both on its Coinbase platform and on the Coinbase Pro platform. It also has multiple other services, including Custody, Commerce, and Earn.

The San Francisco-based firm’s bitcoin holdings are estimated to now be over 1 million BTC, as users deposit funds on it over time. Last month Coinbase revealed it suffered outages after seeing its traffic spike significantly in a few minutes, as the price of most cryptocurrencies moved abruptly.

As CryptoGlobe reported, CryptoCompare’s June 2020 Exchange Review showed Coinbase was the third-largest top tier crypto exchange by trading volume in May, trading $6.86 billion worth of crypto throughout the month, falling behind OKEx and Binance.

Featured image via Unsplash.