Once Coy, Hedge Funds Now Rush to Bitcoin

Bulls are on parade as hedge funds pour money into bitcoin-related projects and products. Traditional hedges have been outperformed by cryptocurrency funds in 2017, and the phenomenon has turned into a full-fledged feeding frenzy. New indices are popping up to track it all. Ecosystem stalwarts Bitgo and Bitpay expect new rounds of funding, and well-over 100 such funds are now dedicated to cryptocurrency.
Crypto Hedge Funds Up 1,500% in 2017
Hedge funds as a whole are up a nice inflation-beating 7.5 percent as the year finishes. When placed against crypto-related industry products, legacy financial professionals are scrambling to up their game. Hedge Fund Research (HFR) President Kenneth Heins tells Lindsay Fortado: “Investor interest in funds offering exposure to blockchain technologies and cryptocurrencies has surged in recent months.”

Citing “the explosive growth in investor interest in blockchain technology and cryptocurrencies,” the company created “two new indices, the HFR Blockchain Composite Index and the HFR Cryptocurrency Index, the first family of indices designed to capture performance of hedge funds investing,” its website touted.

HFR’s Blockchain index shows “a meteoric surge of +1,522 percent in 2017 through November,” while its Cryptocurrency variation “has surged +1,641 percent in 2017 through November,” the company claims. “HFR began tracking the first cryptocurrency hedge fund in 2013, though interest and growth in this area has surged in 2017 as a result of stratospheric price increases and broad proliferation of new coins via ICOs, as well as launches of listed futures contracts,” the company notes.
Ahead of CME & Nasdaq Bitcoin Futures, Hedge Funds Clamor for Access
As cryptocurrencies hit another all-time-high, racking up a half trillion dollar market capitalization, interest is booming. With futures market makers CME (Monday) and Nasdaq (mid 2018) bringing ‘legitimacy’ to bitcoin and its family, once reticent hedge funds have stopped being coy.

“ED&F Man Capital Markets, a $14.2 billion company, has signed agreements with 35 hedge funds, family offices and proprietary-trading firms to help them buy and sell bitcoin futures and is in talks with at least a half dozen more,” reports Bloomberg.

For the better part of half of 2017, ED&F has been preparing with CME for Monday’s open, according to Sonali Basak. ED&F Man’s Brooks Dudley explains, “The prime brokerage relationship is an important one, people don’t hop around prime brokers. So to bring on a lot of new clients for one product is very unusual.”

The popular narrative of the press is bitcoin’s volatility and its bad actors. Valuations have broken through the noise. According to Mr. Dudley, “There were a couple of proprietary-trading firms that I didn’t expect to trade bitcoin, had never been really excited about it, and then Thursday, Friday they called and asked if we could prepare them for the open,” he noted.