Reality Shares Set To Launch $100 Million Crypto Hedge Fund, After Its First Ever Blockchain ETF

Omar Faridi
  • Asset management firm Reality Shares is planning to launch a $100 million crypto hedge fund.
  • The investment firm's new crypto hedge fund announcement follows the successful launch of its blockchain-ETF in January.

Reality Shares, an asset management firm and blockchain exchange-traded fund (ETF) issuer, is reportedly planning to launch a $100 million crypto hedge fund.

Notably, soon after the small asset manager introduced its blockchain-ETF (Reality Shares Nasdaq NexGen Economy China ETF) in January, the investment company’s assets under management increased by over $100 million.

Over 100 Crypto Hedge Funds In 2018

According to a source working closely with the privately owned firm, $25 million has been committed so far to the crypto hedge fund, which is capped at $100 million. Reality Shares’ fund preparations come at a time when over 100 cryptocurrency hedge funds are expected to be launched in 2018, as noted by Crypto Fund Research.

Despite the crypto market shedding over $600 billion since January, it appears that the capital pouring into the volatile digital currency ecosystem is still on track to match, or even exceed, the 150+ crypto hedge funds launched last year.

Additionally, Business Insider noted that California-based Reality Shares’ crypto hedge fund will be “a mix of arbitrage, venture, and directional strategies” and it will join a market of over 366 crypto-asset funds. Moreover, the $100 million investment is also part of the asset manager’s focused expansion efforts into the crypto market.

Only 28 Crypto Hedge Funds Over $100 Million

While it might seem that there is considerable investor interest, the crypto industry is still “really struggling” with capital, as pointed by blockchain investor Meltem Demirors. Notably, a closer look at the numbers by Crypto Fund Research indicates that only 28 crypto hedge funds currently have over $100 million under management.

But when looking at the bigger picture, the entire market capitalization of the crypto market was only around $20 billion in January 2017. Since then, the total market cap of all cryptocurrencies has increased by 10x to currently over $200 billion. However, many market watchers such as Goldman Sachs’ investment advisors have said that cryptocurrencies “will not retain value”, as its recent economic-outlook report tended to focus more on the significant drop in crypto prices, after reaching all-time highs in December 2017.

Wall Street Firms Getting Serious About Crypto

Interestingly, even though Goldman Sachs has been critical of digital currencies, it is still reportedly planning to launch a crypto trading desk. Meanwhile, Intercontinental Exchange (ICE) also recently announced that it will be launching its own digital asset trading platform called Bakkt.

These developments will be encouraging to the crypto-economy at a time where crypto-assets are sliding across the board, as it suggests that traditional financial market institutions are beginning to take the industry more seriously.

How Bakkt Can Bring the Crypto Space an Institutional Investor Influx

Cryptocurrency enthusiasts have for years been waiting for institutional investors to enter the space. While the introduction of bitcoin futures contracts on regulated exchanges in late 2017 didn’t gain a lot of traction, but Bakkt may.

Bakkt is a long-awaited bitcoin futures exchange and on-boarding platform from the Intercontinental Exchange (ICE) - the parent company of the New York Stock Exchange – and it’s set to launch this year. Bakkt itself has remained tight-lipped over the precise launch date after delaying its launch last year, with ICE CEO Jeff Sprecher in February simply saying “later this year.”

It’s possible that this quarter may see the launch or at least more news about when the exchange is finally coming. At the end of March, Bakkt CEO Kelly Loeffler explained:

While we’re not yet able to provide a launch date, we’re making solid progress in bringing the first physical delivery price discovery contracts for bitcoin to the U.S.

Bakkt’s launch could be a major milestone for the cryptoasset industry. A venture backed by Microsoft and Starbucks, its institutional pedigree alone will switch many cautious investors on. Specifically, the firm is set to help consumers pay for goods and services with cryptocurrencies, with Starbucks being the flagship retailer in its arsenal.

Bakkt’s Bitcoin futures contracts will be the first physically-settled derivatives on a regulated trading platform. This means investors will receive the contract’s underlying asset, bitcoin, when it expires.

Currently the Chicago Mercantile Exchange (CME) offers cash-settled bitcoin futures contracts, meaning investors get the equivalent of BTC’s value in fiat when the contracts expire. This is seen by some as a major development in the cryptocurrency space, as it shows traditional finance is willing to interact with the nascent cryptoasset industry.

It’s worth noting that earlier this year the ICE’s CEO called Bakkt a “bit of a moonshot bet,”  as it was organized in a way “very different than the way ICE typically does business.” The firm has its own offices and management team, and could undergo more rounds of financing in the future.

Bakkt And a Potential Bitcoin ETF

What’s significant about Bakkt’s launch beyond this, is that it may bolster the chances of a Bitcoin Exchange-Traded fund (ETF) being approved. Such a product would make it easier for institutional investors to gain exposure to cryptocurrencies.

In August, the US Securities and Exchange Commission (SEC) rejected nine other ETF applications, in particular highlighting how those applying hadn’t provided evidence that “bitcoin futures markets are of significant size’” for an ETF to be launched.

Once Bakkt is launched its trading volumes may very well help quell the SEC’s concerns over the bitcoin futures markets’ small size as institutions and other investors may feel comfortable entering it. Larger futures contracts trading volume, increased liquidity and a well-established company involved may prove enough to convince the SEC that the time is right for a Bitcoin ETF.

Bakkt therefore represents a very significant milestone for a maturing cryptoasset industry and may well herald the “institutional influx” that many have been anticipating since 2017. Despite the markets remaining relatively flat throughout 2019 these looming decisions in the U.S. have the power to move the entire industry forward, for better or worse.