Cryptocurrency hedge funds are not on the rise

David Kemp

2019 brought the opening of hedge funds, the number of which is in the region of seven dozen. They are aimed at family offices, pension funds and other large-scale investors. In 2017 and 2018, there were 291 and 284 organizations, respectively.

About cryptocurrency hedge funds

The number of hedge funds that were opened in 2019 does not reach half of the values of the past and the year before. The maximum number of organizations closed in North America and Europe was 28 and 23, respectively. In Asia and other regions, the indicators are lower.

Nick Carter, who is one of the founders of Coin Metrics, noted, "Retail investors control the market. Nothing will change in the near future."

The General partner of Blockchain Capital, Spencer Bogart, has his own view on this issue. He believes that the process of institutionalization of the market is ongoing. The expert emphasized, "The fact that bitcoin has achieved a certain level of acceptance by institutional players over the past decade is a huge success. Three or four years ago, it was incredible."

Galaxy Digital opened 2 bitcoin funds with the assistance of Fidelity, Bakkt and Bloomberg

Mike Novogratz, who heads Galaxy Digital Holdings, announced the launch of 2 bitcoin funds: Galaxy Institutional Bitcoin Fund and Galaxy Bitcoin Fund. Passive funds offer accredited and institutional investors to make investments in bitcoin using approved service providers. The lowest amount of investment in the Galaxy Bitcoin Fund reaches 25,000 dollars. The lowest value of the second Fund is not disclosed.

Fidelity Digital Assets and Bakkt digital token platforms will act as custodians. Bloomberg L. P will serve as a pricing agent. The audit is entrusted to Deloitte & Touche LLP, and legal issues are handled by Davis Polk & Wardwell LLP.

Steve Kurtz, who heads Galaxy Digital's funds management, said, "Galaxy cryptocurrency funds help eliminate the problems and dangers of direct management to accredited investors. Thanks to them, customers get access to bitcoin with the help of third-party institutional level custodians at the expense of the best service providers and Galaxy assistance."

Bakkt plays an important role in the development of the cryptocurrency market. In the article"What is Bakkt " you can learn more about This tool.

Galaxy Digital has made cryptocurrency options available to institutional investors

Cryptocurrency options are designed to hedge the risks associated with sharp changes in the price of digital coins.

Cryptocurrency lenders, digital coin mining farms, and other major players have clearly shown demand for derivative instruments. This allows you to insure your own capital.

Galaxy Digital conducted calculations that showed that the best way to hedge risks when investors are doubtful about the direction of quotes is to use derivatives. Scriptbank not told the details, he only told about their reference to these interests.

Ari Paul, who is the managing partner of the investment company BlockTower Capital, emphasized that the demand for options of classic financial market players is actually clearly visible. Cryptocurrency giants, including Pantera Capital and Polychain Capital, do not use such tools. Cumberland and Akuna Capital trading platforms also offer options trading services.

What are the derivatives on cryptocurrencies

A derivative is a financial agreement about the future value of a cryptographic currency, service, product, or security. Sellers and buyers of derivatives do not own the underlying assets, and the object of the purchase and sale transaction is the right to execute the agreement.

Usually, derivatives are used to make money on price fluctuations and reduce risks. To do this, they are used on classic and cryptocurrency platforms.

The work looks like this. Trader John is worried that the value of bitcoin will fall to $ 3000, he enters into an agreement with another market participant Don to sell him the cryptocurrency, when the value of the asset will fall to $ 3500 per coin. Thus, thanks to derivatives, you can reduce risks. Another trader, Jim, can buy a contract from John, then he can buy bitcoin for $ 3,500. This is how derivatives work.

The types of derivatives for cryptocurrency

There are different types of tools:

  • Futures. Represents an agreement to buy or sell an underlying asset at an agreed future value. There are futures without dates. They do not have settlement and closing dates, and can be purchased and sold at any second.
  • Forwards. These are OTC agreements to buy and sell an asset in the future. Forwards have a lot in common with futures, they are not as standardized. The first ones are traded via OTC, and the last ones are traded via the exchange.
  • Options. Grant the buyer the right, but not the obligation, to purchase the asset at the specified cost.
  • Swaps. Are two agreements: to buy/sell the underlying asset and its future value. Swaps are a complicated modification of futures. They are traded on the BitMEX exchange.
  • CFD. Represent a derivative for the difference in the value of the underlying asset. The seller pays it if the price of the object has increased during the validity of the agreement. If the price is reduced, the difference is covered by the buyer. These agreements are usually open-ended and are closed by the party entitled to the agreement.

Cryptocurrency funds actively attract institutional investors. They direct their funds to the bitcoin industry and help develop it. If you plan to invest a large amount in cryptocurrency assets, be sure to insure the risks. The best way to do this is to use hedge funds.