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Crypto-Hedge Funds Beginning to Resemble Post-ICO Venture Capitalists

Originally published on: BTCMANAGER
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February 06, 2019

Crypto funds are transiting into the position of venture capitalists (VCs) who completely avoided the initial coin offering (ICO) craze, according to Bloomberg, January 30, 2019.

Crypto-Venture Funds Overtake Hedge

According to the report, hedge fund investors are beginning to resemble VCs. For starters, Arca Funds is looking to establish crypto equity stakes in projects that are having difficulties surviving.

Additionally, Polychain Capital was able to raise $175 million with a seven-year lockup period, while BlockTower Capital hired Eric Friedman to take the lead of the company and implement venture strategies.

Jeff Dorman, a partner with Los Angeles-based Arca, told Bloomberg:

“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.”

The ICO industry was a huge attraction for investors, but ever since the regulatory crackdown on the crowdfunding method, observers have seen investors set their sights on VC funds.

Last year alone, around 125 venture funds offering capital in exchange for a stake were launched. Comparatively, 115 hedge funds which serve as investment funds with equal functions were also launched.

There is a serious clamoring for these offerings and according to data acquired by Crypto Fund Research, these numbers have broken past the “total investment partnerships” in the industry.

According to Kyle Samani, a partner at Multicoin Capital Management in Austin:

“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.”

A big number of these funds are putting its focus on grabbing SAFTs (Simple Agreements for Future Tokens). This enables them to access discounts of up to 80 percent and acquire rights to future coins from startups that are scheduled to issue tokens.

Then and Now

It can be argued that the bearish cryptocurrency markets have pushed crypto hedge funds along. Last year, the crypto-hedge fund sector reported losses with averages sitting around 70 percent. This drop nevitably this had a terrible effect on the sector and forced 42 crypto funds to close in 2018. While there are still around 740 crypto hedge funds worldwide, their future is uncertain and these numbers could dwindle.

2019 might be a decisive year for those who missed the crypto train, with experts pointing to the fact that the only projects that are going to survive are the ones who have already introduced a product.

Travis Kling, founder of Ikigai, a Los Angeles-based crypto hedge fund evaluating SAFTs, stated:

“2019 is going to be the year of separating the wheat from the chaff, and that’s applicable to both projects and funds.”

Hedge fund managers are saying that the market decline is taking its toll on several funds, but even with many funds closing down its doors there is still a lot of activity on the investor side.

Accordingly, investors are now reassessing their profit expectations and are no longer expecting quick returns as previously experienced in the brief and lucrative ICO boom. Even the options set on the table are changing as the majority of the emerging funds now have lock-up periods that can be much more extensive,  ranging from two to seven year periods.

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