Most jurisdictions see Polychain Capital as the largest crypto hedge fund on the market right now, but even they have had to make some changes to their funding sources. Initial coin offerings (ICOs) have mostly lost their appeal, especially considering the ongoing bear market.
After closing a $175 million venture capital fund, they have locked up the new funding for seven years. CEO and founder Olaf Carlson-Wee has commented that the funding will go towards equity stakes that the platform takes in struggling crypto endeavors.
Polychain made history as the first crypto-linked fund last year, holding over $1 billion in assets that they managed. This sum included multiple assets, like cryptocurrency coins and tokens, equity held in multiple companies, and investors’ unspent cash pledges.
However, the 2018 drops in prices have been bad for their business, along with many others. Some platforms lost so much profitability that they had to shut down completely, while others are still looking for ways to bring in enough revenue to survive.
Based on reports from Eurekahedge Crypto-Currency Hedge Fund Index, there have been 42 separate crypto funds that closed down their operations last year. The index tracks 740 funds, of which 70% only hold about 30% of their remaining revenue from last year.
The Polychain CEO commented, “This asset class has always been incredibly volatile. It’s grown in bits and starts, with very rapid increases and then bear markets… When I launched Polychain Capital, I was prepared for this.”
Venture capitalists have largely been the salvation of cryptocurrency firms, as the loss of value has destroyed ICOs as a source of support for developments.
Retail investors that sought to profit from the major crypto boom at the end of 2017 are now doing their best to get out without much more damage to their bank accounts. Funds have had to compensate to offer alternatives to keep them within the industry.
Attempting to fund crypto startups became an even harder endeavor, especially with ICOs, as regulators around the world have been cracking down on the way that these offerings can be done. Kyle Samani, a managing partner at Multicoin Capital Management, spoke to Bloomberg on this issue, saying,
“Funds have silently transformed from hedge funds into venture funds as their liquid portfolios shrank in value, making a very high percentage of AUM illiquid.”