Cryptocurrency hedge funds’ assets under management doubled in 2019, but the launch of new funds depends on Bitcoin prices.
The “2020 Crypto Hedge Fund Report,” published on May 11 by PwC and Elwood Asset Management Services Ltd., said that cryptocurrency hedge funds’ assets under management doubled in 2019.
According to the survey, total assets under management in crypto funds grew from $1 billion in 2018 to more than $2 billion by the end of 2019. The average per fund also doubled, jumping from $21.9 million to $44 million.
Correlation with Bitcoin market
The study found that crypto fund launches are highly correlated with the price of Bitcoin. When bitcoin price spiked in 2018, more funds were launched. While the market slid in late 2019, new fund launching showed a “material decline”.
The report shows that of crypto hedge funds’ portfolio, 97% include Bitcoin trading, followed by 67% using Ethereum. XRP and Litecoin were in the portfolios of 38% of funds.
Source: “2020 Crypto Hedge Fund Report”
Almost 90% of the crypto hedge funds investors surveyed are either family offices or high net worth individuals, with few crypto strategies attracting foundations, venture-capital funds or pension funds, according to the survey.
Fund performance
The survey identified four main cryptocurrency hedge fund strategies. The most common is quantitative, or funds taking an approach to the market in either a directional or a market-neutral manner. It dominates the crypto fund space, being the strategy of 48% of funds.
Source: “2020 Crypto Hedge Fund Report”
However, the report came with a caveat: The results were provided by fund managers themselves, and weren’t verified by an independent fund administrator or other third party. There could be also significant survivorship bias, the report explained:
“The median crypto hedge fund performance was -46% in 2018. However, the median 2019 year-end performance of the funds that are included in this year’s report is 74%. This provides very clear evidence that funds that significantly underperformed during the previous year had to shut down.”
As Cointelegraph reported previously, crypto funds had become the engine powering the growth of the crypto industry.
