Number of new crypto funds peaks since 2021 amid hype around ETFs

What’s new? In the first three months of this year, 25 new cryptocurrency venture capital and hedge funds were launched, the highest number since Q2 2021, according to Crypto Fund Research. The figure was also double the number of crypto funds closed during the same period and almost triple the result of Q1 2023 (9 new funds).

Material by Bloomberg

What else is known? Last year, the number of new crypto funds barely exceeded the number of closures due to a prolonged bear market. The bankruptcies of hedge funds Alameda Research from crypto exchange FTX and Three Arrows Capital (3AC) opened the door for new players to enter the market as it recovers, said Joshua de Vos, researcher lead at data provider CCData.

Among the “survivors” of the bear market, many funds have posted double- and even triple-digit returns in recent months.

New funds include Frachtis from Xavier Meegan, Topology from former Paradigm crypto investment firm partner Casey Caruso, and Nazare Ventures from Orchid Labs crypto startup co-founder Steven Waterhouse.

Many of the new funds are not only focused on cryptocurrencies, but also artificial intelligence technologies. Long-standing companies like Pantera Capital are also attracting new investments en masse.

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According to Galaxy VisionTrack, the total volume of the cryptocurrency hedge fund market has grown from $16,3 billion in December to $21 billion by now, which is the highest since October 2022.

Still, the number of launches is significantly lower than in 2017, when 73 new funds were launched during the quarter, Crypto Fund Research noted. Meanwhile, fundraising has also become more difficult: volumes are lower on average than in 2021-2022 because there are fewer first-time investors in the field.

According to VisionTrack, in Q1, startups raised $2,62 billion from venture capital funds in 631 deals. In the same period last year, $2,9 billion was raised in 781 deals, and Q1 2021, $7,2 billion in 817 deals.

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Much of the rebound in the crypto markets this year can be attributed to the launch of spot bitcoin exchange-traded funds (ETFs) in the US on January 11, as well as the partial approval of similar ETH-based products. Spot ETH ETFs are not yet traded on exchanges and are awaiting approval to launch from the Securities and Exchange Commission (SEC)

While ETFs have helped increase market activity, they also create stiff competition for hedge funds by offering investors cheap, easy, and safe access to cryptocurrencies.