With this year’s incredible gains in the price of bitcoin, the number of hedge funds with exposure to cryptocurrencies is “exploding.” Fund administrator MG Stover & Co, accounting firm Auther Bell, and law firm Cole-Frieman & Mallon alone have 62 in the pipeline.
As the prices of bitcoin and other cryptocurrencies skyrocket, a large number of traders are seeking to launch hedge funds investing in them. Hedge Fund Alert recently reported that “the number of hedge funds investing in digital currencies is exploding.” The publication quoted CPA Corey Mclaughlin, managing member at Auther Bell, who said:
I’ve been in the hedge fund space since 1998, and I’ve never seen anything like it in volume of launches in a particular area. It’s just crazy.
Matt Stover, founder of MG Stover & Co, shared the sentiment. “This is the first time I can remember where we have had a hard time keeping up with the sales calls,” he said.
Institutional investors are surprisingly interested in cryptocurrencies, according to hedge fund lawyer Karl Cole-Frieman. “I wasn’t expecting so many institutional players to be interested in the asset class,” he was quoted saying. Recently, news.Bitcoin.com reported that hedge funds are quietly investing in bitcoin. With this year’s explosive gains in the price of bitcoin, Hedge funds that offer cryptocurrency exposure are seeing windfall gains.
62 Hedge Funds in the Pipeline
Among client funds administered by MG Stover & Co., 12 of them are running digital-currency strategies. The firm has also made agreements to service 25 more, the publication detailed. Arthur Bell is working with about 15 fund managers on cryptocurrency funds and expects to take on 20 more in the near future. Meanwhile, Cole-Frieman & Mallon has helped set up 7 cryptocurrency funds this year and has 17 more in the pipeline. Altogether, 62 new cryptocurrency hedge funds will be brought the market by these three firms alone.
Among the new entrants, there are both those simply taking long bets on bitcoin as well as those “devising hedge fund-like strategies, such as capturing the arbitrage among various currencies,” the publication conveyed. Bitcoin’s value has risen over 200% this year.
“I think the majority of these cryptocurrency [funds] are trying to ride the opportunity du jour,” noted Neal Berger, founder of investment advisory firm Eagle’s View Capital. “It’s an access point for people who can’t buy it themselves or don’t want to learn how to do it.” Former Goldman Sachs executive Matthew Goetz, co-founder at Blocktower Capital, described:
It’s a wildly inefficient market where alpha potential is abundant — more than anything we’ve seen in our careers. We think it’s a rare opportunity for investors. It’s not often there’s a new capital market being born in front of you.
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