Bulls are on parade as hedge funds pour money into bitcoin-related projects and products. Traditional hedges have been outperformed by cryptocurrency funds in 2017, and the phenomenon has turned into a full-fledged feeding frenzy. New indices are popping up to track it all. Ecosystem stalwarts Bitgo and Bitpay expect new rounds of funding, and well-over 100 such funds are now dedicated to cryptocurrency.
Crypto Hedge Funds Up 1,500% in 2017
Hedge funds as a whole are up a nice inflation-beating 7.5 percent as the year finishes. When placed against crypto-related industry products, legacy financial professionals are scrambling to up their game. Hedge Fund Research (HFR) President Kenneth Heins tells Lindsay Fortado: “Investor interest in funds offering exposure to blockchain technologies and cryptocurrencies has surged in recent months.”
Citing “the explosive growth in investor interest in blockchain technology and cryptocurrencies,” the company created “two new indices, the HFR Blockchain Composite Index and the HFR Cryptocurrency Index, the first family of indices designed to capture performance of hedge funds investing,” its website touted.
HFR’s Blockchain index shows “a meteoric surge of +1,522 percent in 2017 through November,” while its Cryptocurrency variation “has surged +1,641 percent in 2017 through November,” the company claims. “HFR began tracking the first cryptocurrency hedge fund in 2013, though interest and growth in this area has surged in 2017 as a result of stratospheric price increases and broad proliferation of new coins via ICOs, as well as launches of listed futures contracts,” the company notes.
Ahead of CME & Nasdaq Bitcoin Futures, Hedge Funds Clamor for Access
As cryptocurrencies hit another all-time-high, racking up a half trillion dollar market capitalization, interest is booming. With futures market makers CME (Monday) and Nasdaq (mid 2018) bringing ‘legitimacy’ to bitcoin and its family, once reticent hedge funds have stopped being coy.
“ED&F Man Capital Markets, a $14.2 billion company, has signed agreements with 35 hedge funds, family offices and proprietary-trading firms to help them buy and sell bitcoin futures and is in talks with at least a half dozen more,” reports Bloomberg.
For the better part of half of 2017, ED&F has been preparing with CME for Monday’s open, according to Sonali Basak. ED&F Man’s Brooks Dudley explains, “The prime brokerage relationship is an important one, people don’t hop around prime brokers. So to bring on a lot of new clients for one product is very unusual.”
The popular narrative of the press is bitcoin’s volatility and its bad actors. Valuations have broken through the noise. According to Mr. Dudley, “There were a couple of proprietary-trading firms that I didn’t expect to trade bitcoin, had never been really excited about it, and then Thursday, Friday they called and asked if we could prepare them for the open,” he noted.
Bitgo and Bitpay Feel the Love
Two weeks. That’s it. Bitgo gobbled over 40 million USD in a recent funding round. “This has been one of the easiest fundraising processes ever,” CEO Mike Belshe explained to Business Insider.
Bitgo greases entry for institutional investors such as The Royal Mint and CME, allowing access to cryptocurrencies through proprietary tech. It does appear this next year will see a rush of hedge fund bulls into the broader crypto market, especially if valuations continue to rise. Mr. Belshe predicts: “We need to be prepared for the $1 billion fund which needs our technology.”
Meanwhile, only three years after having raised 30 million USD in initial funding for payments processing solutions to companies such as Gyft, Microsoft, and Newegg, Bitpay disclosed its efforts to raise another 30 million.
According to its blog, Bitpay’s 2017 “achieved a record year for merchant payment processing on the Bitcoin blockchain, now approaching $2 billion in annualized payment volumes.” Its popular “prepaid Visa debit card, which lets bitcoin users turn bitcoin into dollars, pounds, or Euros for use with Visa merchants, has also seen significant year over year growth.”
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Author: C. Edward Kelso