Crypto Hedge Funds

Price Analysis

Conor Maloney

September 14, 2018

Crypto hedge funds absolutely blew up last year, and it’s no surprise.

Remember all those smart, lucky, crafty crypto-millionaires you heard about who put in $200 at the right time and ended up becoming absolutely loaded?

Imagine that, but instead of some kid messing around on a computer with their pocket money you’re looking at dozens of organized quantitative analysts fresh from Wall Street managing multi-million dollar investments, leverage trading, shorting, going long, and making big bucks in the highly volatile world of cryptocurrencies.

Now, it’s not a completely charmed existence – crypto hedge funds are actually down 50% on average from their ATH at the moment according to a report from Autonomous Research LLC, obviously due to the bear market. It’s possible to trade in a bear market, but add in the massive market manipulation we now know to be rampant in the space and you’re playing with fire.

Or, like, literal millions of dollars.

Autonomous and a group called Tetras both tried to lay the blame at Ethereum’s doorstep, blaming the sudden price drops to the inflated price of Ether which was due for a sudden collapse which would ripple through the marketplace.

It most certainly didn’t help, but given the fact that Bitcoin is the truly aggressive cryptocurrency in terms of market dominance and the highly irrational and unpredictable state of the market, it’s really anyone’s guess.

Still Coming Out On Top

That said, hedge funds are still doing great.

Despite the fact that the crypto market has now lost 80% of it’s value from the ATH making this crash officially worse than the burst of the dot com bubble (I know – ouch), hedge funds are still raking it in. 


Barry Silbert’s company Grayscale, a subsidiary of Digital Currency Group, has disclosed raising $248 million in Q1 of 2018 alone bringing it up to $2 billion in total. In fact, Grayscale claims that the demand for hedge funds and investment vehicles handling crypto is greater than ever before, stating:

“As the investment community knows, over the last six months, the digital asset market experienced one of the largest price drawdowns since the inception of Bitcoin in 2009. However, what is more interesting, and somewhat counterintuitive, is that the pace of investment into Grayscale products has accelerated to a level that we have not seen before. In fact, we raised nearly $250 million in new assets in the first half of this year, marking the strongest inflows of any six month period in the history of our business.”

Pantera Capital

Nope, not the metal band – the only other crypto hedge fund to boast a valuation of over $2 billion. Pantera Capital sought $175 million worth of funding in July and in the face of a huge Bitcoin price slump, and it looks like they’re going to get it.

At last call the company had raised over $70 million from 90 different investors and they have almost a year to raise the rest. Their first round of funding was $13 million and the second was $25 million, making $175 million a huge vote of confidence in their market and business capacity.

Rising Stars

Of course, you don’t have to be worth $2 billion to be a successful hedge fund.

FGB Capital made headlines by performing a pretty great magic trick – they turned $20 million into $200 million in the course of a single year – FGB Capital didn’t even have a name when they started, but the Beijing firm soon impressed Silicon Valley giant Sequioa Capital enough for them to provide crucial seed funding and here we are.

Forbes spoke boldly of the firm, saying:

“FBG’s approach has three pillars: Invest like a venture capitalist in initial coin offerings (ICOs), trade on news and events by moving in and out of tokens rapidly and, critically, exploit insider relationships and marketing hype to ensure profitability. The firm’s rise speaks volumes about the anything-goes world of cryptocurrencies, where the stated ideals of democratization are a joke and being an insider is the surest path to riches.”

FGB certainly relies heavily on marketing and hype as well as adhering to the old adage of “buy the rumour, sell the news” – but some of their less above board tactics may shed a light on the way many of these firms operate behind closed doors.

Forbes alleges that FGB Capital CEO Zhou has quite a close-knit relationship with many of the top crypto exchanges: Binance, OKEx, and Huobi specifically, and that Zhou has leveraged many of the tokens that FGB has invested in (like Zilliiqa) to get them listed on these exchanges and skyrocket their value.

FGB Capital trades over $10 billion a month on various crypto exchanges, according to the firm itself, although they have always refused to disclose exaclty how it is that they make their money.

$10 billion in monthly trades adds up to a hell of a lot of exchange fees for the lucky exchange(s) that are graced by FGB’s presence, making the recipie for a mutually beneficial arrangement – such as FGB’s position on Huobi’s token-listing committee which decides what token to list next.

From an unbiased perspective, I’m sure.

Regulatory Blues

While I’m sure FGB aren’t the only firm to have backdoor relationships with exchanges in the shady world of crypto, there’s one thing that absolutely affects all funds equally – regulatory headaches.

It’s been reported that many hedge funds aren’t even clear on exactly how they’re supposed to be filing their taxes with the IRS due to the total lack of regulatory clarity and consistency on the subject, leading to the rise of crypto tax law firms doing their utmost to tackle the problem and corner a lucrative niche in the market at the same time.

The SEC classes many cryptocurrencies as commodities or securities, while as far as the IRS is concerned, they’re a form of personal property, making it unclear exactly what to write down on those dreaded tax forms and even opening funds up for penalties and or prosecution in the event of misfiled taxes.

Of course, the fact that the regulators haven’t stepped up to the plate yet should work in the favor of the hedge funds for now, and at the very least, anyone making hundreds of millions of dollars can probably afford to pay a penalty every now and again before they figure it all out!

Crypto Is Coming!

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Interested in other cool crypto content? Check out The Evolving Bitcoin OTC market and Game Changer: Binance and LCX Crypto Exchange Joint Venture.

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