The cryptocurrency market has declined from $2.501 trillion to $1.725 trillion in just two weeks, indicating a fall of about 31%. However, hedge funds are interested in cryptocurrency despite the drop.
The hedge fund platforms enable users to invest their funds in a heedfully selected mix of digital currencies like the Crypto CopyFund. The fund offers venture capitalists the capacity to monitor and match the price and market trends of BTC and several other popular cryptocurrencies including Cardano, Ethereum, Dogecoin, XRP, Aave, Dash, Binance Coin, USD Coin, Internet Computer, and many more.
Currently, there are about 200 active cryptocurrency hedge funds (CHFs) of which 4 in every 5 funds were rolled out between the year 2017 and 2020. A large number of venture capitalists in the cryptocurrency hedge funds are 54% high net worth individuals and 30% family offices.
According to the data by PwC Crypto Hedge Fund Report, the median investment ticket size (ITS) is about $0.4 Mln and the average ITS is about $1.1 Mln.
There has been a gradual change of the mix in the investor base due to the high growth in the interest levels from institutional venture capitalists. Currently, CHFs have got a median of about 23 separate venture capitalists.
Following an increase in the prices of most coins and awareness of cryptocurrency in 2017, about 200 crypto funds were rolled out in the same year. There were nearly 700 total hedge fund rollouts at this same time.
However, in 2020, the overall asset under management (AUM) of CHFs worldwide managed to skyrocket to about $3.8 Bln, up from $2.0 Bln that was recorded in 2019. This indicates a surge of about 90%.
As per the report, several CHFs deal with the trading of Bitcoin (BTC), the largest crypto asset by market cap, followed by Ethereum (ETH, with 67%), Litecoin (LTC, 34%), Chainlink (LINK, at 30%) and Polkadot (DOT, at 28%).
More than 30.5% of the CHFs deploy decentralized crypto exchanges (DEX), such as SushiSwap, Binance, Kraken, Coinbase, Uniswap, Bisq, eToro, linch, Coinmama, etc., since they enable secure and direct P2P crypto-asset transfers to happen online minus the need for a third-party. Among these DEXs, Uniswap (16%) is the most preferred and used platform, followed by linch and then SushiSwap.
As it is the nature of human beings, people like to associate with a product that is highly liked or used by the majority. And since the above coins are highly used by the hedge funds, more investors are more likely to increasingly invest in these coins. In its turn, this will help to push the prices high, causing a boom in the entire market. This might bring Bitcoin back above the $40,000 level, make it reach the high of $64.8k or even break it.
When more and more investors, people and institutions adopt BTC as an investment and medium of exchange, its value and price soar. This is because when the demand for Bitcoin or cryptocurrency or any product increases and its supply remains limited, its price will automatically go high - law of demand.
The initial skyrocket in investment triggers an increase in mining (output) and so users accumulate more profits, which is then spent triggering a further increase in aggregate demand. With a bigger multiplier effect, there may be a significant surge in aggregate demand for Bitcoin in the long term.
Generally, regardless of both the dismay and accolades seen in the crypto-asset ecosystem, new funds are continuing to emerge, and the returns being registered are astounding.