Hedge Funds

Crypto hedge funds grew last year even as bitcoin slumped - report

LONDON (Reuters) - Cryptocurrency hedge funds managed three times more in investments in the first quarter of this year than in early 2018, a report by consultancy PwC and investment firm Elwood showed on Monday.

FILE PHOTO: A collection of Bitcoin (virtual currency) tokens are displayed in this picture illustration taken December 8, 2017. REUTERS/Benoit Tessier/Illustration/File Photo

The research showed that crypto hedge funds managed a median $4.3 million between January and March, compared with $1.2 million in January 2018, suggesting demand for exposure to crypto held up even as bitcoin slumped in price by 75%.

The sums under management remain a fraction of those for more established assets.

Bitcoin, the original and best-known cryptocurrency, peaked in December 2017. Since then, the retail-oriented cryptocurrency market has become dominated by hedge funds, crypto-related companies and wealthy individuals, with individual investors mostly fleeing and mainstream investors largely absent.

The health of crypto hedge funds thus offers a window into demand for exposure to the wider market.

Several funds failed last year, the report said, leaving the industry highly fragmented. Around 150 active cryptocurrency hedge funds manage a collective $1 billion in assets, with more than six in 10 funds managing less than $10 million. Fewer than 10% oversee assets of over $50 million, the research showed.

“The crypto hedge fund industry today is probably where the traditional hedge fund industry was in the early 1990s,” Henri Arslanian, who oversees cryptocurrencies at PwC, said in a statement.

The report, based on conversations with managers at around 100 crypto hedge funds, showed that such funds suffered a median 46% loss last year.

“Quantitative” funds, which account for nearly four in 10 and employ methods including arbitrage and low latency trading, benefited from high volatility to return a median 8%.

“Fundamental” funds, which make longer-terms bets, delivered a loss of 53% - underscoring the perils in predicting the direction of digital assets in a market known for its opacity.

Bitcoin traded at around $7,300 on Monday, close to nine-month highs, as the biggest cryptocurrency’s 2019 rally gathered momentum. It soared 14% on Saturday -- its second largest daily jump this year -- to its highest since early August.

Reporting by Tom Wilson; Editing by Catherine Evans