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.

Japanese Lawmakers Propose Digital Yen over Concerns Surrounding Libra, China

A group of Japanese lawmakers has started working on a proposal for Japan to issue its own digital currency over concerns surrounding Facebook’s Libra and China’s upcoming digital yuan.

According to Reuters the cryptocurrency, a digital equivalent of the yen, would be a joint initiative between the country’s government and private companies to put Japan “in tune with global changes in financial technology.” Speaking to the news agency Norihiro Nakayama, parliamentary vice minister for foreign affairs, stated:

The first step would be to look into the idea of issuing a digital yen… China is moving toward issuing digital yuan, so we’d like to propose measures to counter such attempts.

The group of lawmakers, comprised of about 70 Liberal Democratic Party members, is led by former economy minister Akira Amari, and plans to submit a proposal to the government as early as next month.

Reuters notes that Japan is unlikely to issue its own digital currency any time soon as there are technical and legal barriers to overcome, although the move comes as the Bank of Japan, the country’s central bank, joined six other central banks to share expertise on creating digital currencies.

The report adds that Shinzo Abe, the country’s Prime Minister, recently told parliament the government will work with the Bank of Japan in studying digital currencies and “ways to enhance the yen’s convenience as a settlement means.” Some Japanese lawmakers, it says, voiced concerns over China’s move to expand the yuan’s influence as a settlement currency.

A former board member of Japan’s central bank, Takahide Kiuchi, was quoted as saying:

The BOJ probably won’t want to do anything that would stifle private-sector innovation. The best way could be to issue a hybrid-type digital currency that is operated and issued by private firms, with the central bank’s involvement.

Kiuchi noted he believes China and Japan have different motives to issue their own cryptocurrencies. While china ants to enhance the yuan’s influence, Japan would be trying to change its cash-loving culture.

Japan, it’s worth noting, has been accepting bitcoin as legal tender since April 2017, and is home to various prominent cryptocurrency businesses.

Featured image via Unsplash.