Anthony Pompliano Says ICOs And Crypto Fund Managers Are In Trouble To Stay In Business
The cryptocurrency market has been in a bear trend that has affected the whole industry. And this is what Anthony Pompliano, Morgan Creek Digital founder, says in a recent blog post. Mr Pompliano explains that cryptocurrency hedge funds and Initial Coin Offerings (ICOs) are facing some challenges.
Perhaps, the most important thing he said was that cryptocurrency hedge funds are going to start shutting down. Most of them have high water mark issues. A high water mark is a contractual clause that allows fund managers to receive their performance fee if the fund’s net asset value is higher than in any previous investment period.
At the end of the last year, the market was skyrocketing and most of the crypto hedge funds were very profitable. However, since that moment, the bull market started and affected the whole community. Several cryptocurrencies in the market have lost more than 90% or even 95% of their value.
In 2018, according to what Pompliano says, fund managers will not receive the performance fee in 2018. This is not positive for individual fund managers since they will not receive the largest compensation for their work.
He also explains that the next year does not look very bright for virtual currencies. Fund managers would likely stop operating and return capital back to investors. Fund managers might be out of the game for months or even a year before entering the space once again with another virtual currency fund.
About it, Pompliano mentioned:
“It wouldn’t surprise me if fund managers won’t be able to achieve those levels of profits until at least 2020, if not further out. This lack of eligibility for their most important financial incentive will lead to many fund managers shutting down their funds and returning capital to investors. They are likely to sit out of the game for a few months or even a year, before returning with a new fund that will not be subjected to the high water market challenges.”
According to Pompliano, there are young and inexperienced fund managers that did not shut down the operations because they would not realize about it until they don’t receive their performance fee in 2018.
Morgan Creek Digital founder wrote about Initial Coin Offerings as well. He said that several projects raised millions of dollars in virtual currencies. But some ICOs did not hear the warnings presented by experts in legal topics. The U.S. Securities and Exchange Commission (SEC) announced enforcement actions and settlements for two ICO projects.
Moreover, Initial Coin Offerings will be deemed as sales of unregistered securities and those that violated the current laws will have to pay fines.
However, Pompliano says that the ICOs will have to compensate users according to the USD value that they invested. This could be very harmful to the market because ICOs might not be able to return all the requested funds. While ICOs hold most of their savings in digital assets that lost between 50% and 95% of their value during the year, reaching the same amount in USD at the time of the first investment seems a difficult task for ICOs.
Mr. Pompliano seems to have a bearish outlook about virtual currencies in the near future. He says that the current bear market will go from bad to worse very quickly. Additionally, he ended the article saying that the bear market will clear the space from weak hands and ‘tourists,’ allowing real entrepreneurs to keep growing.
“Remember, bear markets get rid of the tourists so that the true entrepreneurs can focus on building sustainable value. Watch closely for the founders who are quietly toiling away with talented teams right now.”