Cryptocurrencies are all the craze right now, especially after the tumultuous year this space had in 2021. Several coins, Bitcoin included, recorded their all-time highs (ATHs), while meme coins and NFTs brought record-breaking returns to their investors. With the widespread adoption of these digital assets around the globe, institutional investors are slowly making their foray into this budding market. Hedge funds, too, have shifted their attention to this emerging market, and there are several of these that have managed to post impressive returns from this field over the years.
Defining a crypto hedge fund
This is an investment fund that accumulates investors’ funds into one pool and invests it in the cryptocurrency markets. Usually, it features a fund manager, who is typically an experienced trader and account manager. This fund manager is tasked with creating complex portfolios and strategies that ensure the fund yields returns that outperform the wider market. Oftentimes, these strategies and portfolios are regularly reevaluated to match the existing market conditions.
By investing their capital into the fund, investors gain exposure to this highly risky market. However, they essentially delegate all their trading duties to the fund manager. Therefore, these investors need not have the expertise and technical know-how required to navigate this market. However, a hedge fund is not the only type of cryptocurrency fund there is. Others are listed below.
Venture capital funds
Similar to traditional venture capital funds, these funds invest in startups building on blockchain technology, or projects developing a digital asset. Usually, they fund these ventures at their initial stages of inception, even before the coin has been listed for trading on exchanges.
Private Equity funds
In a way, these resemble the aforementioned VC funds. However, private equity funds will typically invest in a project that’s much further along in its development process than the VC fund. Usually, they finance projects that have already proven their use cases and profitability, which makes them less risky.
However, though these funds can be differentiated by their investment styles and when they invest in projects, it is not uncommon to see one fund assume the role of the other. This is to mean that sometimes a single fund will invest in an established cryptocurrency while simultaneously investing in the seed phase of an upcoming blockchain-based project. That being said, here are the top hedge funds in crypto in 2022.
Polychain Capital
This is arguably the biggest Venture Capital and hedge fund in this space. Their total assets under management (AUM) lie north of $1 billion. It was launched in 2016 by one of the pioneer employees of Coinbase and renowned fund manager, Olaf Carlson-Wee. Polychain Cap has investments in several established crypto projects and tokens and also funds blockchain-based startups in their seed phase. Notably, this fund has attracted institutional investors in the traditional VC space, such as Founders Fund and Union Square Ventures. This speaks to its profitability and a keen eye for picking out disruptive projects to invest in.
Pantera Capital
Founded in 2003, this is one of the oldest funds in this space. Originally, it started as a traditional hedge fund that concentrated on various trends in investment as they emerged. It was founded by Dan Morehead, who was formerly a CFO at a renowned hedge fund named Tiger Management.
Upon its switch to the digital assets space in 2013, it quickly became one of the leading funds in the space. This can be attributed in part to the fact that it curates its investors by placing a $100,000 minimum investment. This sees it attract a majority of institutional investors, as well as a few affluent individuals who are looking to venture into crypto. Some of the traditional VC firms that are invested in Pantera include Ribbit Capital and Fortress Investment Group. As of January 2022, Pantera had amassed $5.6 billion in AUM.
Digital Currency Group (DCG)
This is a famous hedge fund in the world of crypto and is invested in over 130 blockchain-based projects and digital currencies. Its founder, Barry Silbert, is famed for his contribution to notable startup projects such as Coinbase, Ripple, and Bitpay. Its subsidiary, Grayscale, had $43.5 billion in AUM as of December 2022. Grayscale made headlines by being the first fund to manage a bitcoin investment vehicle – the Bitcoin Investment Trust. Digital Currency Group also recently acquired CoinDesk, a world-famous crypto news source, and media company. Notably, most of the investors in this fund are institutional.
Blockchain Capital
Founded in 2013, this is among the oldest hedge funds in the world of crypto. Its team of founders includes Brock Pierce, who currently chairs the Bitcoin Foundation, Bart, and Bradford Stephens. Blockchain Cap was the first fund to create the first cryptocurrency security token, BCAP, in 2017. It mainly focused on publicly traded companies in the blockchain space, as well as startup projects. Since its launch, it has invested in nearly 100 companies.
Andreessen Horowitz (a16z)
This is a private VC firm that was founded by Marc Andreessen and Ben Horowitz in 2009. The firm is based in California’s Silicon Valley, and it invests in both startups in the crypto space and established, publicly-traded projects. As of January 2022, the firm reported a total AUM of $28.2 billion. All this is distributed amongst more than 27 blockchain-based projects.
In 2021, they made headlines by launching a $2.2 billion crypto fund, which was the largest fund of its kind at the time. Though it was since overtaken, a16z has plans to launch a $3.5 billion venture capital crypto fund, which will give them back the throne for the largest fund in this digital assets space. Notably, this fund has a much longer-term approach to its investment tactics than most funds of its kind.
Conclusion
A crypto hedge fund collectively pools funds from various investors then invests in notable crypto projects. These could be start-ups with the potential of disrupting the market, established projects with solid fundamentals, or even the cryptocurrencies themselves. These firms have the sole aim of outperforming the wider market, and hence, they often apply unconventional investment tactics.
