Crypto hedge funds reported a three-fold increase in assets under management (AuM) in 2018 despite the bear market. It suggests investors were quietly building exposure to cryptocurrency even as the price fell.
Per a comprehensive report on crypto hedge fund performance issued by PWC, hedge funds reported a median AuM of $4.3 million in January 2019, a 3x increase from the year previous ($1.2m).
Congratulations to PWC team on the 2019 Crypto hedge funds report.
Great read. > Institutions will enter the digital assets space via funds first. https://t.co/XBh9iLFkiY pic.twitter.com/elDrRrKhc0
— Charles d’Haussy (@charlesdhaussy) May 13, 2019
Crypto hedge funds: buying the dip
The report confirms that hedge funds were pretty successful in attracting new funds through a difficult market.
“The median AuM at fund launch was US$1.2 million and the median launch date was January 2018, which indicates that the funds surveyed have been relatively successful in fundraising, especially considering that the Bitwise 10 index has fallen ~75% over this period.”
According to PWC, 150 active crypto hedge funds collectively manage $1 billion assets.
Only a small fraction of these funds are high-rollers, with more than half managing less than $10 million each. Much like the traditional hedge fund ecosystem, a small handful of giant funds dominate the total AuM.
Most hedge funds still lost money
Despite attracting new capital, crypto hedge funds weren’t immune from bitcoin’s collapse. The surveyed funds reported a median loss of 46 percent across the board. A dramatic fall in absolute terms, but as the PWC report explains, it’s a significant outperformance against bitcoin.
“The majority of the managers we surveyed use Bitcoin as their benchmark. Therefore, it can be argued that these managers did manage to outperform their benchmark and add some alpha.”
By using leverage and hedging their capital with short positions, hedge funds are better placed to limit the market’s downside. So-called “quant funds” actually returned 8 percent median gains using these techniques in a volatile market.
2,400% “buying spree” in 2019
The trend is accelerating in 2019. As the crypto winter thaws, hedge funds are allocating even more capital to bitcoin. As CCN reported this week, hedge funds propelled a 2,400% increase in inflow to the Grayscale Bitcoin Investment Trust in the first quarter of 2019.
Capital inflows rebound: In the first Q of 2019, Grayscale raised $42.7 million into its single-asset and diversified investment products, marking a 42% increase in quarter-over-quarter product inflows.
Read more in our Q1 Digital Asset Investment Report https://t.co/Nl66nrjdZc pic.twitter.com/GGIIwRsUtf
— Grayscale (@GrayscaleInvest) May 13, 2019
“Grayscale experienced a 42% uptick in product inflows quarter-over-quarter, from $30.1 million in 4Q18 to $42.7 million in 1Q19. Notably, hedge funds ramped up their investments substantially, from less than $1 million in 4Q18 to approximately $24 million in 1Q19.”
A separate report published by Circle last month pointed to a 40 percent increase in crypto fund holdings.
One thing is for certain, hedge funds and their investors have been quietly loading up on bitcoin for the last year. As bitcoin pops to $8,000, we’re seeing the rest of the market sit up and take notice.