Hedge Fund Managers Are Increasingly Pivoting to Blockchain and its Offerings
Undeterred by warnings from the likes of Ray Dalio and Jamie Dimon, hedge fund managers are increasingly pivoting towards blockchain and cryptocurrency investments.The explosive growth in blockchain technology and cryptocurrencies is steadily leading many more hedge fund managers to hop on the bandwagon. Morgan Stanley (MS) estimates hedge fund investments into cryptocurrencies will total a massive $2 billion this year. According to the bank, more than 100 crypto-related hedge funds have sprung up over the past 6 years, with 84 of these being launched this year alone. Bloomberg reports that Goldman Sachs (GS) is now setting up a cryptocurrency trading desk. The surging interest from institutional investors in Bitcoin futures, which are now trading at the CME Group and CBOE exchanges, also bears testimony to the rising interest from fund managers in the crypto space. And why not when these blockchain & cryptocurrency investments have earned hedge funds a hefty 1500%+ return so far this year!
A Few of the Best-Known Hedge Fund Crypto Investments
Here’s a quick overview of the top hedge fund investments into blockchain and cryptocurrencies:
- Legendary hedge fund billionaire Bill Miller, Chairman and Chief Investment Officer at Miller Valued Partners, recently disclosed that his MVP1 fund is 50% invested in Bitcoin and Bitcoin Cash.
- Mike Novogratz is starting a $500 million hedge fund to invest in cryptocurrencies.
- Grayscale’s Bitcoin Investment Trust (GBTC) remains the market leader with over $1.1 billion in assets under management.
- Jose Suarez’s $300 million FinTech hedge fund, Silver 8 Capital, invests in cryptocurrencies and blockchain startups.
- Polychain Capital has a $102.2 million fund invested in blockchain assets including different cryptocurrencies, assets, and digital tokens.
- The Logos Fund, the world’s first “bitcoin mining fund” offers a blend of bitcoin mining and buy-and-hold investing.
- Pantera Capital runs a $100 million ICO-only fund
- Michael Arrington, the founder of TechCrunch and CrunchFund, has also launched a new $100 million cryptocurrency hedge fund called Arrington XRP Capital.
- Venture capitalist Rick Marini is also looking to raise $100 million to invest in 10 crypto-focused hedge funds including MetaStable Capital and Neural Capital.
According to HFR research, some of the key themes these managers are gaining exposure to include cloud storage, decentralized computing, digital investment platforms, distributed ledger technology and promising innovations involving token interconnectivity and transaction scalability. More and more managers are now focusing on how blockchain technologies have begun, and will continue to, fundamentally change payments, banking, market trading structure, the Internet of things (IoT), healthcare, remittances, supply chains, digital identity and more.
Indices that Track Blockchain and Cryptocurrency-Invested Hedge Funds Are up by Over 1500% YTD
Newly launched HFR Blockchain Composite Index and the HFR Cryptocurrency Index from the HFR stable are two-of-a-kind indices, designed to reflect the performance of hedge fund managers investing in blockchain digital currency and distributed ledger technologies.
- The HFR Blockchain Composite Index (HFRBCI) includes funds that invest directly in blockchain technology, cryptocurrency or other emerging blockchain innovations. The index is up 1520.6% YTD (as of November 30th, 2017).
- The HFR Cryptocurrency Index (HFRBCC) includes all funds which invest and trade in cryptocurrency directly, typically generating performance through an actively managed portfolio of cryptocurrency assets, including Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Ripple (XRP) and many other coins, as well as new Initial Coin Offerings (ICOs). The index was up 1634.6% YTD (as of November 30th, 2017).
The table below provides a quick overview of the key highlights of both these funds (as of November 30th, 2017):
|HFR BLOCKCHAIN COMPOSITE INDEX (HFRBCI)||HFR CRYPTOCURRENCY INDEX (HFRBCC)||S&P 500 Index (without dividends)||Bitcoin USD Spot|
The table above clearly summarizes the risk and reward potential of these investments. A whopping 280-290% annualized return vis-a-vis the US stock market benchmark, S&P 500’s 11.3% is HUGE! Nonetheless, investors must not look past the drawdown (the largest single drop from peak to bottom in value) and the standard deviation of these investments, which stand at relatively very high levels compared with the traditional stock market investing average, as represented here by the S&P 500 index.
Image Credit: DepositPhotos