Hedge Funds Warming Up to Cryptocurrency
While cryptocurrency is taking the world by storm , it's no surprise that Wall Street has caught on to the massive profit potential that crypto can offer. With all the startups and alt-coins emerging, companies everywhere are looking for ways to cash in on the digital revolution. They have even taken to building hedge funds focused on cryptocurrency.
What is a hedge fund you ask ?
That's a topic for another day - but for our purposes - let's call a hedge fund a basket of investments - typically a basket of investments would include stocks of companies like Microsoft, Apple, Alphabet and the like. These baskets can hold up 30 or more individual stocks , bonds, mutual funds , or a combination of all of them. Fund managers will put different stocks together into one basket, and then sell off pieces of the basket. These baskets are typically made of of similar investments - so you might buy a fund made up of all tech stocks , or a fund made up of nothing but government bonds - They can also combine asset types , so that fund might be 50% corporate stocks and 50% bonds or any combination thereof. The type of funds you choose to invest in all depends on your investment objectives and your risk tolerance. There are literally thousands of different funds that come in all sizes and flavors , from extremely risky to very very conservative and everything in between.
Investors who buy these are getting a diversified investment and instead of putting all their money into one company - they can spread it out over several companies - and lower their risk , while getting exposure to more assets.
So how does this apply to crypto?
Because those Wall Street hedge fund managers are starting to see the light and are now packaging up crytocurrency in their baskets. In addition the the stocks, bonds, and other financial instruments, many mangers have begun to include cryptocurrency into the funds they manage. Some of them are even focused specifically on crypto . This has actually been going on since 2013 however, the recent interest in digital currency has led to an explosion of new funds. Just this year alone, with the addition of another 15 crypto focused funds in the pipeline this year, the total number of cryptofunds has risen to 70! It's highly likely that number will continue to grow over the next several years.
ValueWalk reports:
The size of the cryptocurrency market has exploded during 2017 with the market reaching a total size of $100 billion on June 9 and rising to $113 billion this week. Bitcoin, which is possibly the most talked cryptocurrency accounts for 37.8% of this market and together with another currency Ethereum has a market capitalization of $77.6 billion
What does this mean to you?
well - this give investors who are interested in digital currency the opportunity to purchase baskets of crypto - instead of putting $1000 into Bitcoin - that same $1,000 can be split up between Bitcoin, Ethereum, Dash, Litecoin, Steem, and a host of other available and emerging currencies. These managers also manage the fund regularly - selling off at peak times and purchasing more when the price drops - all to give you the best return on your money. They have teams of professional watching the market every single day and making changes as they see fit to hep grow the fund and make it as profitable as possible. If you are interested in investing in cyrptocurrency , but aren't sure which ones are going to pan out - you can used instruments like these to hedge your bets and benefit from their daily research. You can also benefit if you simply want exposure to more alt-coins to diversify your investments.
Rupert Hargreaves says the following in his article on Valuewalk.com :
The two most high-profile of these 15 new funds are Pantera Capital’s ICO Fund and Brian Kelly Capital Management. The latter was founded by Brian Kelly, a money manager, CNBC Fast Money commentator and author of The Bitcoin Big Bang. The official opening date was July 1 with a goal of reaching $50 million in assets under management. The BKCM Digital Asset Fund will employ a three-pronged strategy: buy-and-hold for about 50% of the tokens, ICOs for 20% and the rest will be actively managed.
When you spend enough time around it, it's hard to deny the opportunities that blockchain currency represents, as shown by Olaf Carlson-Wee a former Coinbase employee who raised $10 mIllion dollars to start a cryptofund called Polychain Capital, and is attracting venture capitalist like Andreessen Horowitz .
There's even an index
Hedge fund data firm Eurekahedge has been running an alternate Crypto-Currency Fund Index since 2013. The Eurekahedge Crypto-Currency Fund Index tracks the performance of five actively managed ‘Alternative-Coin’ cryptocurrency Hedge Funds that carry exposure to Bitcoin, Ethereum, and other cryptocurrencies. According to reports, it has returned a cumulative of 2152.32% in contrast to a return of 1408.11% for the Bitcoin Price Index.
It's not all easy street though, as cryptocurrency is still seen as highly speculative and with a standard deviation of 215%, it has the distinction of being the most volatile index tracked by the data firm. Still, that hasn't stopped the funds from growing and outperforming the average global hedge fund over all periods. So clearly, we are seeing the blockchain permeate into every aspect of the financial industry - its no longer a fringe hobby or passing fad - cryptocurrency is making billionaires out investors and it's here to stay.
To read about this, check the article on ValueWalk:
https://www.valuewalk.com/2017/08/cryptocurrency-hedge-funds-bitcoin-price/?all=1
Despite Wall Street's Involvement in Cryptos I think crypto currencies will still continue to grow in value.
I think that wall street involvement will be a catalyst that propels crypto into the mainstream - when the fat cats realize how much money there is to be made - they'll be jumping on the bandwagon like fleas on a dog - of course I see a lot of growing pains and certainly there will be more bubbles, and alt-coin failures - but over the next decade, I believe there will be a few contenders that will rise to the top and get global recognition as legitimate currency - the emergence of cryptobacked hedge funds is like having the cool quarterback at school notice you - once you're in his good graces , everyone else wants to be your friend too and that's what hedge funds are going to do for digital currency. By then the price will have risen significantly and outside investors will start to think that they 'missed the boat" and think its too late to invest in it - much like I'm hearing about Bitcoin now. Still - as they become more accepted and traded in more markets , their value will continue its meteoric rise.
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