2017 was a year when cryptocurrency price rise attracted millions of new investors. However, most of these investors are actually retail investors - investing into cryptocurrencies for the first time. After seeing the massive rise in cryptocurrency prices, a number of institutional investors, i.e. seasoned players who invest in the form of hedge funds, etc. are entering the cryptocurrency markets.
Institutional investors are flocking towards the crypto markets in large numbers. Be it Peter Thiel, the Rockefeller family owned Venrock, Grayscale Investments, or even names such as TechCrunch have started entering the markets as institutional players. A majority of these are in the form of hedge funds. A report from February indicated that the number of cryptocurrency hedge funds have doubled up in 4 months.
While Hedge Funds hadn’t really felt the pain of the crash till February, March was a crucial month as cryptocurrency Hedge Funds went through quite a price fall. The HFR Blockchain Composite Index, which made a profit of over 2700% last year, fell 42.9% last month and closed the first quarter of 2018 down 52.6% This is an alarming statistic for these industry heavyweights.
Following the disaster that March proved to be, Nine cryptocurrency hedge funds decided to shut down last week. There is a speculation that more names may soon be added to the list of cryptocurrency hedge funds that have shut down over the next few months. HFR president Kenneth J. Heinz commented:
"March and the first quarter of 2018 have already defined a significantly divergent financial market and hedge fund performance environment than prior years, with the shift and volatility punctuated by the escalation of trade and tariff politics and economics.
"As most equity markets declined, hedge funds quickly adapted to low and non-correlated exposures across asset classes, and to capital protection and preservation positions, en route to producing a first-quarter gain. It is likely that these trends will not only continue but accelerate into mid-year, driving uncorrelated gains and industry capital growth."
Interestingly, at a time where cryptocurrency hedge funds are scrambling to stay afloat, well known Billionaire hedge fund investor George Soros decided to trade on cryptocurrencies using his fund Soros Fund Management. This is rather interesting because Soros was a known Bitcoin sceptic and wasn’t a strong believer in cryptocurrencies having a long-term future.
While Bitcoin continues to attempt holding on to the $7000 mark and the markets continue being volatile, cryptocurrency hedge funds are feeling the brunt of this instability. However, if you consider what market experts such as the Coinbase COO Asiff Hirji have to say, these ‘mature’ players and institutional investors are what will help ‘dampen the volatility’ of the cryptocurrency markets!