By Gaurav S. Iyer, IFC Published : April 4, 2018
Ethereum News Update
As Ethereum prices trended lower on Wednesday morning, my attention was drawn to a Bloomberg report claiming that cryptocurrency hedge funds are facing a “reckoning” in 2018.
Are they really?
The article says that nine hedge funds have already exited the market, while the rest are sustaining heavy losses. And according to an industry tracker, surviving funds have lost 23% of their total portfolios. (Source: “The Crypto Hedge-Fund Bubble Is Starting to Deflate,” Bloomberg, April 2, 2018.)
With these horrific numbers, it’s no surprise that firms like Crowd Crypto Fund have “gone dark” on the Web, deleting their web sites and social media accounts, while others, such as Alpha Protocol, simply returned the money that investors had contributed.
All told, Bloomberg paints a grim portrait and spreads fear, uncertainty, and doubt (FUD).
What sticks out to me, however, is that there were roughly 200 hedge funds in the cryptocurrency space. So if we go by percentages rather than nominal figures, fewer than five percent of firms have been shuttered. That number is far less scary, at least to me.
It’s true that Bitcoin prices have corrected by more than 50%. It’s also true that only two of the top 25 cryptos are net positive in 2018. But that could easily be read as a correction from last year’s euphoric bull market, rather than a deflation of a crypto bubble.
Don’t get me wrong, the Bloomberg report is entirely factual and well sourced. I’m simply concerned about the framing of the article, because it betrays an inclination to treat cryptos like any other tradeable assets, which they are not.
Cryptocurrencies are fundamentally different from stocks and bonds. The fairest comparison, in my opinion, is that investing in cryptos is like investing in startups.
How so, you ask? Well, the upside potential of both is immense, for one thing. And second, the prospect of disaster is always lurking around the corner.
I’m not saying anything new here. Governments have used this exact rationale to justify shutting retail investors out of the venture capital (VC) market for time immemorial.
All I’m saying is now that we’re examining the success or failure of cryptocurrency endeavors, let’s use the right metrics. After all, isn’t it commonly said that VCs only need one out of 10 investments to pan out? That success rate would look pathetic compared to an equities portfolio.
It’s going to take some time for markets to sort out which metrics to apply and when. So expect more volatility in the coming weeks, because I don’t think we’re close to getting there.
However, I remain confident in the long arc of cryptocurrency prices. And as such, we maintain our $1,500 Ethereum price forecast for 2018.