Over the years, blockchain-based assets as a whole have seen widespread adoption worldwide by individuals and institutional investors. So far, one thing is clear – there is plenty of profit potential in this crypto space.
However, as with anything that promises great profits, crypto carries with it plenty of risks. Be that as it may, more and more fund managers are dipping their toes in this market, utilizing complex strategies to earn profits for their investors. With them, they bring huge sums of money in assets under management (AUM), with the average hedge fund holding around $21.9 million in AUM.
Hedge funds in the digital assets space
Typically, hedge funds pool funds from various investors and invest them in a trending financial asset for a profit. In crypto, these funds serve the same purpose. They collect capital from various individual investors, which they then invest in crypto with the goal of yielding profits that outperform the wider market. To achieve this, they are usually actively managed by a proficient fund manager. Such managers apply their skills and expertise to create complex strategies which they utilize in building their portfolios.
By investing in these funds, investors get exposure to the risky yet highly profitable cryptocurrency market without needing the expertise required to navigate its murky waters. The fund usually contains a team of experts led by an experienced fund manager. From time to time, they rebalance the constituents of their portfolio to match the prevailing market conditions.
There are different types of funds in the crypto space. Let’s look at them below.
Crypto hedge funds
They use complex risk mitigation strategies to yield returns above those of the average market. They typically invest in established tokens and blockchain projects.
Crypto VC funds
These are funds that invest in the seed stages of upcoming crypto projects, even before they are listed for public trading on any exchange. Essentially, venture capital funds help finance these projects with the hope of profiting when they go to market.
Crypto private equity
These are somewhat similar to crypto VC funds, except they invest in projects that are much further along in their development. They ensure that the project they are funding has been proven to work, and its scalability is guaranteed.
However, though these funds are categorized according to their investment approach, it is not uncommon for either of them to mix these strategies. For instance, they could invest in established crypto projects and fund seed-stage projects simultaneously. In this article, we shall focus on crypto hedge funds, and below are the top contenders in this industry.
With more than $1 billion in AUM, Polychain Cap sets itself apart as one of the largest hedge funds in the crypto space. It is managed by its founder, Olaf Carlson-Wee, who was one of the pioneer employees at Coinbase. It invests in blockchain-based digital assets and also funds startups building on this technology. It identifies these projects by gauging those with the strongest fundamentals to disrupt the crypto market once they launch. Notably, this fund has managed to attract prominent institutional investors such as Union Square Ventures, Sequoia Capital, and Founders Fund, which are all renowned VC firms.
Founded in 2003, this fund began as a conventional hedge fund investing in major trends. Once cryptocurrencies launched and their profit potential was realized, the fund switched to these blockchain-based assets. It is managed by Dan Morehead, who was previously a CFO at another popular hedge fund, Tiger Management.
Thus far, it has managed to net in investments from renowned institutional investors such as Benchmark, Ribbit Capital, and Fortress Investment Group. Notably, this fund caps their minimum investment at $100,000. This sees it attract only extremely wealthy individuals and institutions as its investors.
Digital Currency Group
Founded in 2015, this fund has investments in over 130 projects in the crypto space. It is managed by its founder, Barry Silbert, who was involved in startups like Coinbase, Ripple, and Bitpay. Its subsidiary, Greyscale, which invests exclusively in crypto assets, had over $43 billion in AUM by year-end 2021.
The majority of investors in this fund are institutional. Greyscale is also the first fund to manage a publicly-traded BTC investment vehicle, the Bitcoin Trust, which has continually posted significant profits. DGC also acquired Coinbase, one of the market leaders in crypto news reporting.
Launched in 2013, this is among the oldest funds in this space. Since its inception, it has invested in more than 80 blockchain-based companies. It is managed by its three co-founders, Bart Stephens, Bradford Stephens, and Brock Pierce. The latter currently sits as the chairman of the Bitcoin Foundation.
This fund was responsible for the crypto industry’s first security token, BCAP, which went public in 2017. It also created the first-ever tokenized investment fund. Typically, Blockchain Cap invests in both established cryptos and early-stage startup projects in this space.
Andreessen Horowitz is a venture capital firm based deep in the heart of California’s Silicon Valley and goes by the pseudonym a16z. According to their mantra, they invest in entrepreneurs who are shaping the future using technology. By January 2022, this fund reported holding a collective AUM of over $28 billion, which is distributed amongst various funds investing in projects at different stages of development.
In June 2021, a16z raised $2.2 billion for an exclusively crypto-dedicated fund, which was the largest crypto fund at the time. Currently, they are looking to launch a $3.5 billion venture fund for crypto, which will see them have the largest crypto fund once more if they succeed. Notably, this fund has a much longer-term approach to its crypto investments.
The impressive growth of the crypto industry has seen it gather institutional attention and acceptance. To that end, there are several funds that have ventured into this space. From crypto hedge funds venture capital funds to private equity funds, investors now have a wide variety of institutions through which they can get exposure to the highly profitable crypto market.