Although the rest of the financial world has been hesitant to accept cryptocurrencies as a legitimate investment option, certain hedge fund managers have made strides in that direction. Indeed, as public interest in cryptocurrencies has grown over the last year, so has the number of cryptocurrency-focused hedge funds formed. (See also: Cryptocurrency Hedge Funds Increased by Over 1,000% in 2017.)
According to Benzinga, there are around 150 hedge funds with a cryptocurrency or blockchain emphasis, and Agecroft Partners CEO Don Steinbrugge expects that number to double – or maybe treble – over the course of 2018.
A Venture Capital Approach
Many of the new bitcoin hedge funds have taken a strategy similar to that of venture capital companies. (See also: The Crypto Hedge Fund’s Rise.) In some circumstances, hedge funds seek to invest new entrants into the cryptocurrency market, extending their support and financial backing to new coin offerings or firms that contribute to the industry’s advancement or make use of innovative technologies.
That is not to argue that hedge funds focusing on bitcoin play an outsized role in terms of the amount of money they deal with. The global hedge fund sector has over $3 trillion in assets under management.
In contrast, just roughly $3 trillion, or one-tenth of one percent of that amount, is devoted to the cryptocurrency and blockchain areas. Steinbrugge predicts that this figure will more than fivefold in the next year. Even yet, in relation to the rest of the hedge fund industry, the proportion of hedge fund money committed to cryptocurrency investments will most likely be negligible.
Investment or Gambling?
One reason hedge funds may be hesitant to join the Bitcoin market is because it has historically been speculative. “People should use extreme caution when investing in cryptocurrencies,” Steinbrugge said. “They should consider it gambling. We are really positive about crypto in the long run, but a lot of the prices have been driven by greed and inexperienced investors who have stepped in after witnessing how much these assets have risen lately and believe it will continue.”
Even if the Bitcoin bubble bursts, hedge funds might profit from the industry. With a market that is continuously changing and a lot of money gained from blockchain and cryptocurrencies being poured back into the field, new coins and services are constantly being introduced. “Those who can predict the next generation of leaders may earn a lot of money. Those who invest in cryptocurrencies just because it has increased in value are essentially gambling “According to Steinbrugge.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion byInvestopedia or the author to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site. The author owns cryptocurrencies as of the day this post was published.
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