Bitcoin's Price is Correlated with the Launch of BTC Hedge Funds 16

Bitcoin’s Price is Correlated with the Launch of BTC Hedge Funds

Quick take:

  • According to a report by PWC, Bitcoin’s price is correlated with the number of hedge funds launched in a certain time period
  • 97% of crypto hedge funds prefer to trade Bitcoin (BTC)
  • For the year 2019, Bitcoin’s organic price movement outperformed all hedge fund strategies
  • Family offices and high-net-worth individuals are the core investors in crypto hedge funds

The price of Bitcoin (BTC) has a new variable in the form of hedge funds launched. According to the team at PwC, the price of Bitcoin is correlated with the launch of new crypto hedge funds. The report by PwC was first pointed out by the team at Unfolded via the following tweet.

The tweet by Unfolded also shares a chart from the report showing the correlation between Bitcoin’s price and hedge funds opened in a particular time period. The team at PwC explains the chart as follows.

As shown by the graph above, the launch of actively managed crypto funds is highly correlated with the price of Bitcoin (BTC).

The Bitcoin price spike in 2018 appears to have been a catalyst for further crypto funds to launch.

We can also see a material decline in new fund launches as crypto markets trended downward at the end of 2019.

97% of Crypto Hedge Funds Prefer to Trade Bitcoin

In terms of the preferred digital asset traded by the said hedge funds, PwC concluded that 97% of them preferred Bitcoin followed by Ethereum at 67%.

Most crypto hedge funds trade Bitcoin (97%) followed by Ethereum (67%), XRP (38%), Litecoin (38%), Bitcoin Cash (31%) and EOS (25%).

Additionally, almost half of the hedge funds surveyed by PwC reported that at least half of their daily cryptocurrency trading volume was Bitcoin.

Bitcoin Outperformed all Hedge Fund Strategies in 2019

Also worth mentioning, is that the report highlights that in 2019 Bitcoin outperformed all hedge fund trading strategies.

It is clear that Bitcoin (+92%) outperformed all hedge fund strategies in 2019. While these strategies were able to mitigate the effects of the 2018 crypto bear market, they did not succeed in replicating the upward trend of 2019. In summary, they acted as volatility-reducing tools rather than performance-enhancing catalysts.

Family Offices and HNWI Made Up the Majority of Investors

In terms of their investor base, the hedge funds surveyed by PwC stated that family offices and high net worth individuals were their core clients.

…the most common investor types (almost 90% of all investors) are either family offices (48%) or high-net worth individuals (42%).

In fact, none of our respondents cited pensions funds and only a handful had foundations or endowments as investors.

Somewhat surprisingly, we see that the share of investors that are Venture Capital (VC) funds and Fund of Funds (FoFs) is small by comparison.