Expect More Crypto Hedge Funds To Close in 2018… But Not For Why You Think.

In a recent tweet thread, Anthony “Pomp” Pompliano, co-founder of Multicoin Capital, outlines why many of crypto hedge funds might be closing their doors in 2018.


Most people would expect that the bear market and the prices would be the number one reason why most hedge funds are closing up shop.

While this is certainly a factor, Pomp believes that it has to do more with the fee structures that the funds set-up in 2017. In 2017, 198 hedge funds launched and in 2018, it’s projected that 220 hedge funds will open.

2017 was a great year to start a crypto hedge fund, especially the earlier part as the returns were massive and investors made great returns.

2018, on the other hand, has seen a significant downturn in many of the cryptocurrencies like Bitcoin, Ethereum, Ripple, Litecoin and Stellar, Zcash and DASH. Many of these coins make up a strong percentage of most of the crypto hedge funds out there.

While price has a significant reason for the closing of these hedge funds, it’s actually due to the fee structures many of these funds set-up in 2017, which will actually cause the closings of these funds.

Most hedge funds have a fee on what is known as Assets Under Management or AUM.

A 2% management fee is pretty standard across all industries for hedge funds. The real money for owners of funds is what is known as a “performance” fee or an “incentive” fee which can be as high as 20% of profits. These bonus fees are calculated at the end of the year. In 2017, the numbers indicated stellar returns.

As an example, if a fund had $10 million assets under management and grew it to $20 million, they would take 20% of the $10 million in profits and pocket a $2 million incentive fee.

According to Pompliano, most hedge funds have a high water mark clause in their contracts that basically states, “The performance bonus is only good if the fund breaks the previous yearly high.’

This means that for the same fund that doubled in value of 2017 at $20 million, would need to be above $20 million by the end of December for 2018.

Due to the 70-90% corrections from all-time highs in 2017, a majority of crypto funds will most likely not make any performance fee this year.

This means they have three options for the rest of the 2018 fiscal year.

They can:

  1. Raise New Capital
  2. Ride the market out and hope 2018 is better.
  3. Close the fund

Raising new capital is a hope for many funds, as the new money won’t be ear marked with the ‘highwater’ clause. In fact, we are seeing a lot of funds trying to raise more money for the 2018 year to get in on the bear market prices.

Kyle Semani of Multicoin Capital has stated, “New capital has slowed, even for a higher-profile fund like ours.” This means that most of these smaller, lower profile funds are feeling the weight of this bear market as capital is drying up for the crypto markets.

As for riding out the market, I’m guessing that, like many of our readers, they are hoping for a strong 4th quarter so that they can reach the benchmark set in 2017. Based on conservative figures, most funds need to 4X from their current positions to get back to their high water marks.

We’ve seen this in other industries. If we don’t get the strong fourth quarter, then we may see hedge funds start to close their doors to start new ones, join other firms, or just retire from their 2017 profits. George Saber from Coin Observatory, a crypto hedge fund advisory company, had the following to say:

We have hedge funds from around the world that use our Market Intelligence Interface to keep their investors money safe. You have to adapt your strategy to the market that you’re in. 2017 was a buy and hold bull market. 2018 has been a choppy bear market. We recommend our clients use complex hedging strategies rather than just hodling and praying. It’s all about exposure and risk management.

A few lessons to take away: the best hedge funds of 2018 were most likely shorting the markets all year or at least hedging their positions by shorting the futures market.

What are your thoughts on the current state of crypto hedge funds?


Images courtesy of CryptoFundResearch.com, Shutterstock.

Bitcoin, Ethereum, Ripple, Bitcoin Cash, EOS, Stellar, Litecoin, Cardano, Monero, TRON: Price Analysis, October 19

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk, you should conduct your own research when making a decision.

The market data is provided by the HitBTC exchange.

Retail investors tend to run for cover when the market falls, whereas the professionals get their buy list ready to take advantage of the bargain prices. Though the trading volumes have been falling in the past few months, the merger and acquisition (M&A) activity is on an upswing.

Recently, Goldman Sachs and Mike Novogratz, CEO of Galaxy Digital, invested $15 million in the crypto custody service BitGo. Data from PitchBook, compiled by JMP Securities, shows that there are likely to be 145 crypto- and blockchain-related deals by the end of this year, well above the previous year’s count of 47.

Price-wise, some analysts believe that the calm in the markets is about to end. They expect Bitcoin to take a decisive direction within the next 1–2 weeks. Do the charts point to a potential breakout or a breakdown? Let’s find out.

BTC/USD

Bitcoin has failed to break out of the overhead resistance at $6,831.99, resulting in a move down. Currently, the price is at the moving averages, which might act as a support. However, if the bears break this level, the digital currency can slide to the next lower support at $6,250.

BTC/USD

A lack of follow-up buying after the surge on Oct. 15 is a bearish sign. It shows that the market participants are in a hurry to close their positions during every small rally. Both moving averages are flat and the RSI is close to the midpoint. This points to a consolidation in the near-term.

The BTC/USD pair can remain range bound between $5,900–$6,832 for the next few days. A breakout or breakdown of this range will start the next directional move.

On the upside, the bulls should watch the levels of $7,400 and $8,400. On the downside, a break of $5,900 will trigger panic selling among the participants, plunging the price to $5,450, and further to $5,000 in a short time.

We suggest traders close their long positions if the pair breaks the support at $5,900.

ETH/USD

Ethereum remains weak. It might retest the bottom of the range of $192.5–$249.93. If the bears succeed in breaking down of the range, a retest of a Sept. 12 low of $167.32 is probable.

ETH/USD

Any attempt to pull back will face a stiff resistance at the moving averages and above that at $249.93. The ETH/USD pair will show signs of strength if it sustains above the range.

The traders should wait for a breakout and close (UTC time frame) above $250 to initiate any long positions. Until then, it is best to remain on the sidelines.

XRP/USD

Ripple has marginally dipped below the 20-day EMA, which shows profit booking at higher levels. Both moving averages remain flat and the RSI is close to the neutral territory. This points to a consolidation in the short-term.

XRP/USD

The XRP/USD pair will become negative on a breakdown of the support at $0.37185. On the upside, it has a slew of resistances at $0.5, $0.55 and $0.625. It will resume its uptrend if it sustains above $0.625. We don’t find any reliable buy setups at the current levels; hence, we are not suggesting any trades on the pair.

BCH/USD

A lack of buying has pushed Bitcoin Cash to the support line of the symmetrical triangle. A breakdown of the triangle will resume the downtrend and sink prices to $300 with a minor support at the Sept. 11 intraday low of $408.0182. Therefore, traders should protect their long positions with the stops at $400.

BCH/USD

The 20-day EMA has started to turn down after remaining flat for the past few days. The RSI is also in the negative territory. This shows sellers have the upper hand. The BCH/USD pair will show signs of strength if the bulls break out of the triangle.

EOS/USD

There is nothing much happening in EOS as it continues to trade close to the moving averages. It has been trading inside the range $4.4930–$6.8299 for the past two months. The flat moving averages and the RSI in the neutral territory suggest equilibrium between the buyers and the sellers.

EOS/USD

The buyers will have an upper hand if they succeed in pushing the EOS/USD pair above the overhead resistance of $6.8299. A break down of the support zone at $3.8723–$4.49 will tilt the advantage in favor of the bears. Therefore, the traders holding long positions should keep a stop loss of $4.9.

XLM/USD

Stellar broke out of the overhead resistance at $0.24987525 on Oct. 17 and 18. However, on both occasions, the bulls could not sustain the higher levels.

XLM/USD

We remain positive on the XLM/USD pair because it continues to trade above both moving averages, which are starting to turn up. If the bulls break out and close above the overhead resistance, it will invalidate the bearish descending triangle, which is a bullish sign. Therefore, we retain our buy suggested in the previous analysis.

On the downside, the digital currency will find buying support at the moving averages. Any break of this support can retest the zone between $0.204 and $0.2148.

LTC/USD

Litecoin continues to trade below both moving averages, which is a negative sign. A break below $52 can result in a drop to the bottom of the range at $49.466. This will be the fourth visit to the bottom of the $49.466–$69.279 range since Aug. 14.

LTC/USD

If the bears break down and close below the range, a fall to the next lower support of $40 is probable.

The LTC/USD pair will signal a change in trend only after a breakout and close (UTC time frame) above the range. We believe the traders should wait for a break out of the range before initiating any long positions in it.

ADA/USD

Cardano turned down from the 50-day SMA on Oct. 17. It is likely to find some support at $0.069, below which it can drop to the critical support at $0.060105.

ADA/USD

Both moving averages are flat and the RSI is inching towards the neutral territory. This shows a balance between both the buyers and the sellers.

The ADA/USD pair will pick up momentum if it scales above the overhead resistance at $0.094256 and $0.111843. We don’t find any buy setups at the current levels; hence, we are not proposing any trades.

XMR/USD

After failing to scale above the moving averages in the past few days, Monero has again dipped below the support of $107.8. It can now slide to the next support at $100, below which a drop to $81 is possible.

XMR/USD

Both moving averages are flat and the RSI is in the negative territory. This shows the probability of a consolidation in the near-term.

The XMR/USD pair can move up to $128.65 if it scales above the moving averages. We shall wait for a new buy setup to form before suggesting any trades.

TRX/USD

TRON has been holding above the 20-day EMA for the past four days, which is a positive sign. It will indicate a change in trend if the bulls break out and close (UTC time frame) above the overhead resistance at $0.02815521.

TRX/USD

The traders can buy a close (UTC time frame) above $0.03 with a target objective of $0.41. The initial stop loss can be kept at $0.02, which can be raised later.

The TRX/USD pair will weaken and sink to $0.02 if it breaks below the moving averages. We don’t find any trade inside the $0.0183–$0.02815521 range.

The market data is provided by the HitBTC exchange. The charts for the analysis are provided by TradingView.

Crypto Markets See Minor Losses as Relative Calm Continues, Bitcoin Slips Below $6,500

Friday, Oct. 19: crypto markets are seeing minor losses across the board, as low volatility continues. The top 10 cryptocurrencies are seeing an equal amount of positive and negative fluctuations, but almost all very minor, capped within a 2 percent range, as Coin360 data shows.

Market visualization

Market visualization by Coin360

Bitcoin (BTC) is down a little under percent on the day, and is trading at $6,470 as of press time. With one notable exception Oct. 15 – a brief spike correlated with Tether’s slight untethering from its dollar peg – the top coin has been trading sideways between $6,500-$6,500 for the past few days, before slipping below the $6,500 today, still above where it started the week, close to $6,300.

Bitcoin 7-day price chart

Bitcoin 7-day price chart. Source: CoinMarketCap

On the week, Bitcoin is 2.7 percent in the green, and is also up just about 2 percent on the month.

The market’s top altcoin Ethereum (ETH) is trading at a round $200 as of press time, seeing a negligible price change of just a fraction of a percent on the day. The second crypto by market cap saw a similarly sharp spike to Bitcoin on Oct. 15, reaching over $220, but has since corrected to trade range-bound between $205-210 over recent days, only just dipping to as low as $202 earlier today.

On the week, Ethereum is a solid 3.25 percent in the green; on the month the coin has lost about 2 percent.

Ethereum 7-day price chart

Ethereum 7-day price chart. Source: CoinMarketCap

Of the top ten coins on CoinMarketCap, Stellar (XLM) is seeing the most price change over the past 24 hours to press time, up a solid 3 percent.

Litecoin (LTC) meanwhile has edged into the green, and is also up an above-average 1.48 percent on the day to press time.

Controversial stablecoin Tether (USDT) continues to grow to reclaim its peg to the U.S. dollar, trading at around $0.98 and up about 1 percent on the day.

Tether’s 7-day price chart

Tether’s 7-day price chart. Source: CoinMarketCap

As controversy over the stalwart stablecoin continues to simmer, yesterday, crypto investor and entrepreneur Michael Novogratz said he thought Tether has not done “a great job in terms of creating transparency,” referring to the project’s offshore banking arrangements. By way of contrast, he favorably singled out the Winklevoss twins’ Gemini as an emerging stablecoin that has U.S.-based fiat reserves and New York regulators’ oversight.

In the context of the top twenty coins, the 11th-20th ranked coins are all in the red, with losses capped within a slightly higher 4 percent range, though most losses are also very minor. Zcash (ZEC), which yesterday saw soaring growth, atypical for the wider stable market, is today down 2 percent. It nonetheless retains its newly-won ranking as top 20 largest crypto by market cap, having dislodged Dogecoin (DOGE) from the spot yesterday.

NEO (NEO) down by a similar amount, losing 1.54 percent on the day to press time.

Tezos (XTZ) has taken the heftiest hit, losing around 4.44 percent on the day to trade at $1.30.

Total market capitalization of all cryptocurrencies remains below $210 million, currently at $208.4 billion as of press time – down from an intra-week spike to around $221.6 billion Oct. 15, but remaining higher than at the start of its weekly chart at around $203 billion.
7-day chart of the total market capitalization of all cryptocurrencies

7-day chart of the total market capitalization of all cryptocurrencies from CoinMarketCap

Yet more stablecoin news continues to break as the week ends, with third largest cryptocurrency exchange Huobi announcing the creation of what it calls its own native “stablecoin solution,” HUSD, which has been designed to help manage the four other USD-backed stablecoins currently listed on the exchange – (Paxos Standard (PAX), True USD (TUSD), USD Coin (USDC) and Gemini Dollars (GUSD).

Meanwhile, as meagre market momentum holds, crypto and blockchain-related merger and acquisition (M&A) activity is reported to have surged by over 200 percent in 2018, with analysts suggesting that the so-called “crypto winter” is being viewed as an opportune moment for institutions to make “strategic” deals in the space.