Many Crypto Funds Got This One Wrong

Sina Nader of CryptoLux Capital, and Daniel Cawrey of Pactum Capital have an interesting post in Coindesk today (link below).  It is not about a trade gone wrong, a fat-finger order, or poor market timing.  It’s about the distinction between a Hedge Fund and a Venture Capital Fund and how they are designed to target very different types of investments.  Many asset managers got this, their earliest decision at their fund, wrong.  It seems that in the rush to launch in 2017 or 2018, many asset managers created Hedge Funds (and their associated liquidity and fee structures) when they should have created Venture Funds.  It reminds me of a saying from my days on an FX trading desk…”Don’t let a trade turn into an investment”.

Essentially, there is a difference between a short-term, liquid market which is what Hedge Funds are designed to trade, and a long-term illiquid market (VC’s world).   Interestingly the use of blockchain technology to create security tokens is going to merge the two separate types of investors such that what had traditionally been the domain of VC firms (long-term, illiquid investments) will become more liquid by tokenizing the fund.  The VC funds will be creating the supply of liquid tokens that the hedge funds will start trading.  Maybe the creators of the many crypto hedge funds just need to wait it out a bit longer until there are more native digital assets to trade.

Most Crypto Hedge Funds Aren’t Really Hedge Funds