In the wake of the falling Bitcoin prices, newly formed crypto hedge funds are taking a huge hit, and many of these funds are beginning to shut down due to high water mark issues, said “Off the Chain” podcast host, Anthony Pompliano.
Pompliano is a recognized figure in crypto and is founder and partner at Morgan Creek Digital. He writes a daily email newsletter analyzing crypto news for institutional investors, also called “Off the Chain.”
After the end of the bull market of 2017, performance poor due to 50-80 percent decreases in various popular cryptocurrency assets. Hedge Fund managers tend to receive performance fees based on exceeding past performance. With the decreases in profits, many of these new managers will soon realize they aren’t going to get paid come year’s end.
To reach any sort of commission from today’s markets, profits would have to increase by two to four times — an unlikely scenario in the near future. Pompliano believes that the lack of financial incentive for these managers will drive them to close their doors and return investor money.
Pompliano also claims that the current market begs the question: Why haven’t more crypto fund managers realized this already and shut down?
His answer is that the explosion in popularity of Bitcoin brought upon by the immature market brings out many young and inexperienced managers who do not realize the implications of poor performance.
The number of these managers who will stick it out until the end of the bear market is unclear, but they are not the only ones at a financial disadvantage right now.
ICOs receive a notable mention in the blog post, which points out that recent SEC regulations will deem many of them unregistered securities. Many projects will be forced to pay fines on funds raised and pay investors back their money.
The trouble lies in the fact that ICOs raise funds in terms of cryptocurrency, many of which have decreased in value since last year. In paying back their investors, many ICOs will be unable and will have to file for bankruptcy.
Any Hedge funds that include these tokens in their portfolios will see further losses if this becomes the case. This is why Crypto.IQ has combed its portfolio for anything that looks a security and eliminated it.