Funds investing directly in blockchain technologies and cryptocurrencies have seen mass diminishing returns in the past year, new research reveals.
Investing in cryptocurrencies is big business, and getting bigger. Of 80 institutional cryptofunds surveyed by ICORating.com, 70% have more than $100m assets under management.
However, the influx of new capital and new liquidity has shone a light on the sector, and the declining price of Bitcoin, stricter regulatory oversight, and continual news of exchange hacks and ICO scams have all affected the profits these funds return.
Bitcoin in particular has fallen from a December 17th, 2017 high of $19,870 to stabilise around $6,000 in July 2018. That’s a loss of over 60% of its value over the course of six months.
According to ICORating, 2017 was the ‘peak time’ for the founding of funds like Bitcoin Growth Fund, Crypto20, and Blackmoon Crypto.
Yields have plunged since then, however. In 2017, the funds surveyed offered a median return on investment of 600%. By 2018, that median return had fallen to just 14%.
The panic this might inspire should be tempered somewhat by the relatively small sample size. Only 8% of funds were willing to disclose their returns on investment.
This does limit the conclusions that can be drawn. ICORating.com for its part says the influx of institutional interest in the sector has positives for all cryptofunds.
“We consider this development to be broadly positive for the industry and believe that the door for additional institutional and traditional players to enter the market will continue tp open further as the crypto space becomes increasingly professionalised.”
The space is dominated by hedge funds and venture capital funds. Only 17% have issued their own token to offer investors standard cryptocurrency features like voting rights, the opportunity to buy-in pre-ICO (token presale), and member-only discussions on Telegram or Discord.
That would indicate that the trend is for traditional institutional funds to take over and ditch the utopianist elements of cryptocurrencies that don’t fit their business model.
LMAX Digital was the first fully-regulated traditional exchange to offer crypto-trading to institutional investors like pension funds and insurance companies. That was only in May. We’re not much further down the line now.
Blockchain-based products – and not cryptocurrencies themselves – are considered to be the most wide-reaching and profitable future applications for the space, and profits are to be had in volatility. However, more than double the number of cryptofunds under consideration also invest in the top cryptocurrencies, rather than investing solely in blockchain startups.
There is still much to do in terms of the transparency of these cryptofunds. Only 8-in-10 state publicly where they are based. Currently, 42% are in the US, 7% in Singapore, the UK 5% – with the rest spread out in traditional financial centres like the Cayman Islands, Hong Kong and Switzerland.