Cryptocurrency Hedge Funds Continue to Perform Poorly

By Kapil Gauhar

Cryptocurrency hedge funds continue to struggle in 2018 with no respite in sight.  It’s June already and these crypto-focused hedge funds continue to perform poorly.

According to the Financial Times, cryptocurrency hedge funds are down by 35 percent so far in 2018. This decline is completely opposite to their performance in 2017 when revenues grew by 2,700 percent. Such was the success of the market that a total of 167 firms were established in 2017 alone.

The digital currency market has had an unlucky 2018 so far. Market prices have declined steadily with any slight upward movement being quickly thrashed by a dip. In this context, PwC cryptocurrency lead, Henri Arslanian said:

“I expect the crypto markets to remain volatile for the foreseeable future. While retail investors may see volatility in the crypto markets as a downside, many crypto funds see it as an opportunity.”

The Bitcoin price dip showcases the current market situation. The number one cryptocurrency is currently trading at a third of its value during its ATH in mid-December 2017. Cryptocurrency hedge funds have lost their shine in the wake of the prolonged bear run of 2018. As of April 2018, nine firms had closed down while only 8 percent of the top 25 crypto hedge funds recorded any profits.

Some positive signs continue to remain for cryptocurrency hedge funds. News from the SEC regarding the regulatory status of Bitcoin and Ether in the United States has brought in something of a reprieve in a dour market downturn. Since these top two digital currencies are now exempt from the jurisdiction of SEC regulators, institutional investors might be incentivized to put more into the market.

When looking at the causes for the downturn, lack of regulatory clarity and delays in the emergence of critical market apparatus like custodial tools are some of the causes. Arslanian also noted that an influx of big-time investors into the industry will have a profound effect on the market that is far more critical than any temporary price fluctuation.

Concerning institutional investors, firms like Goldman Sachs have launched products intended to rope in big investors. With the emergence of clear regulations and trustworthy custodial tools, the cryptocurrency market revival is on its way again. This could also mean good times for cryptocurrency hedge funds in the near future.