According to San Francisco-based Crypto Fund Research, despite the clamour for institutional investment, almost 70 crypto hedge funds have closed in 2019 so far.
The same Crypto Fund Research report cited in Bloomberg also says that the number of funds opening in 2019 is less than half the amount the year before.
Most of the funds halting operations catered to high-net-worth individuals, family offices, and pensions.
Of the 70 crypto hedge funds to close, some 28 were in North America, 23 in Europe, and 17 in Asia/Pacific and other regions.
2019 was meant to be the year of institutions
With the entrance of key players such as Fidelity and ICE Markets into the space this year, 2019 was heralded among many as the year of the institutions. However, as we saw from Bakkt’s tepid launch, institutional demand hasn’t exactly reached fever pitch.
There are still plenty of encouraging signs that the cryptosphere is maturing, however. The infrastructure is being built out from custodial solutions to high-interest accounts. And the fact that the New York Stock Exchange has given Bitcoin a vote of confidence cannot be underplayed.
Moreover, earlier this year, giants like JP Morgan and Microsoft announced their plans to build on the Ethereum and Bitcoin blockchains. Other large retailers such as Walmart and Whole Foods also endorsed blockchain technology, successfully using it in their supply chains.
However, the dismal statistics around crypto hedge funds paint an entirely different picture. It seems that cryptocurrency’s high volatility may still be making institutional investors nervous. As Bloomberg points out:
“While high-profile advocates such as Fidelity Investments and the New York Stock Exchange’s parent company plough ahead with initiatives seeking to make it easier to own digital assets, their potential customer base seems to be disappearing at a quick clip.”
The cryptocurrency market is still ‘retail-driven’
According to Nic Carter, Coin Metrics co-founder and active player in the space:
“The market is definitely retail-driven and will remain so for the foreseeable future.”
The long-awaited launch of the first regulated physically-settled Bitcoin futures provider Bakkt got off to a slow start. And while trading volume has improved, even hitting record highs in recent days, it remains relatively low.
CME Group also posted disappointing figures last month. It shows a daily volume this year averaging around 32,500 Bitcoins (some $236.8m currently).
That’s a mere drop in the ocean compared to the trillion-dollar futures industry. It also pales in comparison to retail BTC futures trading on lightly regulated exchanges, where it’s not uncommon for trading volume to exceed $10bn a day combined.
These figures aren’t holding firms like Fidelity back, however. According to a survey conducted by the company, institutional investment into cryptocurrencies will likely increase over the next five years.
Other key players, such as Michael Novogratz’s Galaxy Holdings, are also pressing ahead. Galaxy launched two new Bitcoin funds for institutional investors last month.
Why are institutions still at the gates?
Despite the encouraging strides forward, why are we still waiting for institutions and seeing crypto hedge funds closing down?
It seems that regulation is still largely to blame. Look no further than the US Congress’ heavy scrutiny over Facebook’s Libra or the SEC’s clampdown on ICOs and continued rejection of Bitcoin ETFs.
On top of that, Bitcoin’s high volatility may also be preventing many traditional investors from entering the market. However, while it’s less of a stampede and more of a trickle, general partner at Blockchain Capital LLC Spencer Bogart remains optimistic. He told Bloomberg:
“I think some would argue that the levels of institutional adoption are disappointing or underwhelming but, of course, this view depends entirely on expectations. To me, the fact that there is any institutional adoption for Bitcoin only 10 years into existence is a radical success and beyond what anyone could have imagined just three or four years ago.”
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