Encryption Hedging Fund Management Scale Doubles, Family Offices Become Major Investors

The latest survey report reveals the capital management situation of family offices and high-net-worth individuals in the encryption market. The data shows that the assets under management (AUM) of cryptocurrency-centered hedging funds significantly increased in 2019, jumping from $1 billion at the end of 2018 to $2 billion.

In 2019, fully entrusted long-only funds performed the best, with an average return rate of 42%. Among the sources of funding for hedge funds, family offices accounted for 48%, and high-net-worth individuals accounted for 42%, becoming the main investor groups.

A survey shows that there are about 150 active encryption hedging funds, of which nearly 63% were established in 2018 or 2019. The activity level of fund establishment is highly correlated with the price trend of Bitcoin, with the rise in Bitcoin prices in 2018 serving as a catalyst for the establishment of cryptocurrency funds.

The report categorizes cryptocurrency hedge funds into four types: fully discretionary long, fully discretionary long/short, quantitative funds, and multi-strategy funds. Among them, quantitative funds are the most common, accounting for nearly half of the market share.

From the perspective of investor composition, family investment institutions and high-net-worth individual investors account for as much as 90%. It is worth noting that pension funds, foundations, and endowment funds have a very low share in cryptocurrency investment, and traditional venture capital funds and funds of funds also have a relatively small level of participation.

The median number of investors in cryptocurrency hedge funds is 27.5, with an average of 58.5. The median average investment size is $300,000, and the average is $3.1 million. About two-thirds of cryptocurrency hedge funds have investment sizes below $500,000.

In 2019, the performance of encryption hedging funds significantly improved. The median performance increase reached 74%, while most funds that performed poorly in 2018 have been forced to close. Classified by investment strategy, fully discretionary long funds performed the best in 2019, with a median performance of 40%.

As the encryption derivatives market becomes increasingly diversified and liquidity improves, encryption hedge funds are adopting more complex investment strategies. About 48% of the surveyed funds hold short positions, and 56% use derivatives. In terms of leveraged trading, the proportion of funds using leverage rose to 56% in 2020, but active users only accounted for 19%.

In the future, with the increase of regulated encryption futures products, it is expected that more crypto hedge funds will enter this field. However, due to the increasing difficulty in obtaining debt financing, the outlook for the growth of leverage usage remains unclear.