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Cryptocurrency Investment Funds Review

Cryptocurrency Investment Funds

October 6, 2021 | 

382 Views | 

Jesus Guzman | 

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Cryptocurrency investment funds are a great way to invest in digital money while taking advantage of the benefits that come with investing collectively. Many investors are showing interest in cryptocurrency funds with the promise of making significant returns in the future.

Current insights and statistics are, however, signalling a decline in the performance of cryptocurrency investment funds this year. A report on crypto hedge funds by PWC showed a decrease in the number of cryptocurrency hedge funds launched in 2021 compared to data from previous years. Let's dive deeper into what's happening in the crypto funds industry.

The Number of Cryptocurrency Investment Funds in 2021

According to a study by Crypto Funds Research, there were roughly 840 cryptocurrency funds in more than eighty countries by the end of June 2021. Half of these funds have offices in North America. 20% are in Asia and another 20% in Europe. The remaining 1% to 5% are crypto funds in the Middle East, Africa and other countries.

A majority of these funds were launched in 2017 and 2018. Another study from the PWC annual report shows that only 20% of these cryptocurrency hedge funds were opened after 2018.

2021 Recorded Fewer of Crypto Fund Launches

Data from Crypto Fund Research indicates that only 50 cryptocurrency funds were launched in the first half of 2021. This number is a 30% decrease from launches in 2019 and an 82% decline from 2018.
Twenty-three crypto investment funds closed down within the first half of 2021. It's worth noting that the number of launches outpaced the closures.

Another insight worth observing is that the number of closures in 2021 is lower than those that occurred in previous years. 2019 recorded 70 cryptocurrency fund closures, with most being in North America and Europe.

The Performance of Cryptocurrency Investment Funds Correlates with Price of Bitcoin

The report by PWC showed one interesting takeaway, which is that the performance of cryptocurrency funds goes hand in hand with Bitcoin performance. As shown in the graph, a rise in the bitcoin price signals a rise in cryptocurrency fund launches. A drop in fund launches comes after a drop in bitcoin price.

Many people believe Bitcoin is stronger and more stable than others. Cryptocurrency performance in many countries is in most cases dictated by bitcoin performance.

The Performance of Bitcoin in 2021

It’s no secret that Bitcoin prices have been fluctuating a lot this year. Bitcoin recorded an impressive rise during the first three months of 2021, with the highest price being $58734 per bitcoin in March. Analysts speculated the upsurge could be because of increased adoption by renowned brands and events surrounding Tesla's announcement to acquire 1.5 billion US dollars' worth of Bitcoin.

The price of bitcoin, however, dropped as if overnight to $35749.66. Since June 2021, it has been fluctuating around the $40000 to $50000 mark. This sudden price drop could be because of speculation that the government will begin regulating the cryptocurrency industry. Fear of government intervention could be why some cryptocurrency funds have closed doors this year.

Cryptocurrency Investment Fund Performance in 2021

Cryptocurrency fund returns dropped down by 9% in the second quarter of 2021 compared to the first. In the first quarter, top cryptocurrency funds acquired and managed a collective amount of $57.5 billion in digital money returns. While in the second quarter, the amount was $52.4 billion. The report by Crypto Fund Research concluded that the second quarter of 2021 was the first drop since the last quarter of 2019.

The main driver behind the closure of cryptocurrency funds could be government regulation. The topic of regulation is a complex one since cryptocurrencies are not bound or governed by government agencies. The impressive growth and adoption of cryptocurrencies captured the interest of institutions and governments. Government regulation is the main driver behind the fluctuating price of bitcoin and other cryptocurrencies.

In mid-September 2021, the Chinese government announced that it would regulate the cryptocurrency industry. This announcement led to a collapse in the performance of cryptocurrencies. China also ordered the closure of bitcoin mining in Sichuan province and instructed banks to stop supporting cryptocurrency transactions. The Chinese central bank has banned the use of digital coins on the grounds that they are illegal.

Cryptocurrency performance always gets affected when governments try to intervene. The nature and characteristics of digital coins make this industry challenging to regulate. Will government regulation harm the performance of cryptocurrencies? It depends on the extent of the intervention.

If the purpose of regulation is to prevent money laundering and other illegal activities, the harm might be minimal. If, however, the motive is to control prices and introduce taxation and other limitations, it might affect the adoption of cryptocurrencies as a new way of transacting.

What happens to the cryptocurrency fund market after the performance decline?

Cryptocurrency funds are fairly a small niche market in the investment fund sector. According to Crypto Fund Research, this market makes up only 1% of the hedge fund industry. There is still a lot of room for growth.

Most investors are still trying to understand how the cryptocurrency industry works. Governments are trying to grasp how they can regulate the market. Many hedge funds will go back to adopting cryptocurrency funding once all the confusion and nervousness soars down. We believe the cryptocurrency fund market offers more benefits than drawbacks.

To Sum Up

Cryptocurrency investment funds have shown a decline in performance in 2021. The number of crypto fund launches that occurred this year is only 50, and it's a 30% decrease from 2019 and an 82% decline from 2018. The launches of cryptocurrency investment funds go hand in hand with the price of bitcoin. Bitcoin has been fluctuating a lot in 2021 due to speculation on government regulation.

Crypto fund returns also tumbled by 9% in the second quarter of 2021. Speculation on government regulation is probably the main driver behind the decline in the performance of cryptocurrency investment funds. Are you looking to get into the cryptocurrency fund market? Explore the world’s top cryptocurrency rates and market caps on Interactivecrypto.

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