Crypto Hedge Funds Grow 64% Over the Past Year as Institutions Embrace Digital Currency
After spending much of the last eight years bashing cryptocurrency, Wall Street is beginning to embrace the digital asset class more intently than ever before. Case in point: the number of cryptocurrency hedge funds has increased 64% over the past year. As it turns out, Goldman Sachs isn’t the only institutional player pivoting toward cryptocurrency.
The Rise of the Crypto Hedge Fund
There are now 287 hedge funds devoted to cryptocurrency trading, compared with 175 a year ago, according to data from Autonomous Next. Astonishingly, there were only 20 crypto hedge funds in existence in 2016.
Over the past year, at least 100 hedge funds have been launched for the sole purpose of trading cryptocurrency. At this rate, institutions will play an increasingly pivotal role in the digital currency market in the very near future.
Digital currency exchanges are betting big on institutional money. San Francisco-based Coinbase recently unveiled four new products designed to unlock up to $10 billion in institutional capital currently sitting on the sidelines. This includes a new custodial service that will provide institutions with a trusted steward to safeguard their digital assets.
As for hedge funds themselves, April saw a huge turnaround in terms of profitability, as firms played the crypto-market rebound to great success. In the process, they gained more than 80% compared with March.
The Next Bull Market
Coinbase has put forward the position that institutional capital will be responsible for the next great bull market in cryptocurrency. If 2017 was the year of the retail investor, 2018 and beyond will largely be driven by institutions. A close examination of Google search trends seems to support this view.
The 2017 bull market was accompanied by a wave of new entrants into the cryptocurrency market, as evidenced by the surge in Google search results for terms like “bitcoin” and “cryptocurrency.” If we use the same metrics, we can conclude that cryptocurrency has lost its buzz among new traders. For example, a term like “cryptocurrency” achieved a Google Trends score of 12 in the most recent week, down from a perfect 100 at the start of 2018.
That said, hedge funds are still a long ways away from dominating the crypto market. In fact, institutional adoption remains weak overall in spite of the recent growth. This was recently pointed out by Tom Lee, the Wall Street crypto analyst leading research at Fundstrat Global Advisors.
In Lee’s view, cryptocurrencies failed to rally during blockchain week because of adoption hurdles at bank as well as a lack of custodial tools among major institutions. Using the same logic, Lee concludes that institutional demand is one of the missing ingredients for a large rally in prices.
However, Lee has maintained a strongly bullish outlook on crypto assets, including a price forecast for bitcoin of $25,000 by the end of the year.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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