The Rise of the Crypto Hedge Fund

Hedge funds have long been a popular choice for risk-averse investors and rely on the fund’s visionary founder and teams of analysts to guide their money in the right direction. Whether led by Ray Dalio, George Soros or another famous mogul, the best funds constantly seek out the next edge, even if they already outperform the market each year. With the rise of cryptocurrencies like Bitcoin, they may have finally found it. Timing, however, is vital.

The massive percentage growth of Bitcoin, even in the face of extreme stress testing, has legitimized it in the eyes of investors everywhere. Accessible infrastructure makes transacting via the blockchain easy, and people can exchange crypto with fiat currency–opening the waters to the big fish.

This has created the perfect entry for hedge funds. Giant, influential funds see a comparatively small-volume asset like Bitcoin (which recently hit $100 billion market capitalization), plus demand in the investing populace, and have finally taken the plunge. New funds are emerging as well. This development has been met with both dismay and accolades in the crypto community, but one thing is for certain: returns so far have been astounding. 

What is a Crypto Hedge Fund?

Unlike a cryptocurrency index fund, an ETF, or an exchange, a hedge fund is a different way for a person to invest in a large group of underlying securities. These are managed by teams of expert investors, re-balanced on occasion, and endlessly analyzed. Investors receive profits from these experts’ market maneuvers. At present, there are two kinds of cryptocurrency hedge funds. Those that manage portfolios containing exclusively cryptocurrency, and those that have added some cryptocurrency to a mix of other asset types.

The former type of hedge fund seeks to maximize returns by adding newly offered coins (ICOs) to the mix, to replicate the 82,000% returns that the Ethereum ICO achieved, for instance. The latter are arguably more risk-averse, but are less profitable, given cryptocurrency’s stellar rise.

(For related readng, see: Why Aren't Hedge Funds Interested in Bitcoin?)

Who Can Benefit?

Those who want to get in on Bitcoin’s growth, for example, can make an account with the eToro Cryptofund. This hedge fund platform allows individuals to invest in a carefully selected mix of cryptocurrencies such as the Crypto CopyFund. This fund provides investors the ability to mirror the market movements of Bitcoin and other established coins such as Ethereum, Ripple, and Dash.

While early cryptocurrency buyers are already millionaires, those who are just now adopting cryptocurrency-centric investing strategies are still ahead of the curve. Many believe that having a portfolio of stable cryptocurrencies based on high volume blockchains is a smart move and is a great set up for a healthy financial future. So far, they’ve been right, and the last decade has proven that weak hands sell at their own risk.

While no one can predict cryptocurrencies’ value in the future, the past several years have supported the concept. More so, they have proven that people are willing to invest, which is a positive sign for continued price growth. Investors who believe in the technology and are ready to use their money accordingly, but do not want full exposure to the young (and often volatile) market, will find a perfect compromise in a safe crypto hedge fund.

(For related reading, see: The 6 Most Important Cryptocurrencies Other Than Bitcoin)

How Traditional Hedge Funds See It

Bitcoin remains a small percentage of the hedge fund industry, but even the oldest and most established funds can see what’s coming. Efforts to bring emerging markets into the 21st century are slow, yet the rise of cryptocurrency has made standing still even harder. Many millennials now prefer to “unbank” themselves and keep their funds in a cryptocurrency exchange rather than a bank account. This trend has forced institutions to consider cryptocurrency as a part of their business model.

While keeping money exclusively in exchanges is dangerous, given disasters like Mt. Gox, it sets up hedge funds as a perfect middle ground between this lawless crypto-world and the suit-and-tie banking experience. Per Hedge Fund Alert, there are over 15 digital currency funds up and running today, and 25 more set to land in the coming years, ready to help make the next generation of “crypto millionaires”.

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