New Crypto Fund Research Shows Crypto Venture Funds Are Thriving, Despite Bear Market
The cryptocurrency industry has been dealing with a major slump since last year, and the industry’s investors have not quite started bringing it back up yet.
However, new venture funds for cryptocurrency seem to be increasing in numbers, according to a Bloomberg report. Bloomberg reviewed a recent collection of data acquired by Crypto Fund Research.
In the new research, there have been 125 crypto venture funds added to the industry during the last year, which usually offer capital to gain an equity stake. In the same year, only 115 investment-oriented crypto hedge funds were established. Based on Bloomberg’s report, it seems that this shift could be credited to the dwindling initial coin offering (ICO) market, which was slammed last year with new regulatory measures and a drop in crypto prices.
The trading climate is not an easy one to withstand right now, but this is a prime opportunity for venture capitalists, which is what Jeff Dorman of Arca says. He added,
“There’s going to be a lot of opportunity in distressed buying and even activist investing. Often, you can buy below even the cash value of the company.”
A managing partner for Multicoin Capital Management, Kyle Samani, said,
“Funds have silently transformed from hedge funds into venture funds as their liquid portfolios shrank in value, making a very high percentage of AUM [assets under management] illiquid.”
Multicoin Capital Management has primarily sought out venture strategies and token investments in the past.
The rise of Simple Agreements for Future Tokens (SAFTS) could also have impacted the changes in the industry. These agreements allow unissued tokens to be purchased at substantially low prices, with some only costing 20% of the original price.
Paul Veradittakit of Pantera Capital Management said that his own platform’s ICO investment fund “is getting a lot more similar to venture.” SAFTs, he said, seem to be a “de-risk[ing strategy that is] very, very helpful.”
Overall, Bloomberg found that hedge fund losses amounted to an average of 70% across the board last year, based on data from Eurekahedge Crypto-Currency Hedge Fund Index. Even with 42 crypto funds closing last year, Crypto Fund Research shows that there is still approximately 740 more around the world.
Samani has expressed that investor inflows are becoming more common during this time, saying,
“We are talking to a lot of institutional investors. A lot of smart people who’ve been interested in crypto for a year, two years, and were waiting for it to cool down, are now looking at the space activity.”
Investors should not plan to see a fast return on their investments right now, since there are many new funds that require a lock-up for anywhere from two to seven years. CEO of Polychain Capital, Olaf Carlson-Wee, told Bloomberg,
“Like any investment in an early stage technology and in an early stage company, it can often feel like an overnight success when it is successful, while it takes a long time to deploy these technologies.”