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More Crypto Hedge Funds Expected to Close Soon, for Odd Reasons

The co-founder of Multicoin Capital, Anthony Pompliano fondly referred to as “Pomp” have recently stated via his twitter handle that many crypto hedge funds might be shutting business doors in 2018 to for odd reasons.

Hedge Funds Closing Up Shops

Although the apparent reason appears to be the bearish nature of the crypto market, Pomp shares the opinion that the major cause for the predicted closure of these crypto hedge funds is the fee structures. He noted that 2017 was a great year for hedge funds when about 198 of them were launched with projections of reaching about 220 this year. Pomp further stated that the sector enjoyed massive returns last year; a factor that kept the investors smiling. But in 2018, there has been a significant downslope on many cryptocurrencies like Bitcoin, Ethereum, Ripple, Litecoin and Stellar, Zcash and DASH which are pillars of most crypto hedge funds. A recent research revealed that crypto funds account for about 20% of hedge funds in 2018.
He laid emphasis on fee structure as being the odd reason for this closures, Pompliano reiterated that most of the hedge funds have high water mark clauses in the contractual agreement, stating that:

“The performance bonus is only good if the fund breaks the previous yearly high.”

By implication, this would translate to December 2018 ending with over $20 million for the same fund in the value of $20 million in 2017 to double. The majority of crypto funds will most likely not make any performance fee this year.

A Strong Q4 Might Save Hedge Funds

In general, the crypto industry has experienced some setbacks which can only be saved by a strong Q4. The hedge funds can experience same as the pre-existing hedge funds might close their businesses to create new ones or perhaps join other startups or retire on the previous years’ returns. Certain lessons could be learned from this dilemma, first being that; some of the best hedge funds this year were probably shorting the markets all year or at least hedging their positions by shorting the futures market.

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