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.”
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.”
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.