CryptoWatch: HFR kicks off cryptocurrency index, as hedge funds take shine to bitcoin
The overall hedge-fund industry may be struggling, with a large number of funds closing and aggregate performance lagging behind the broad U.S. equity market, but one subsector is seeing blistering growth, thanks to the surge in cryptocurrencies like bitcoin.
Hedge Fund Research on Wednesday unfurled a pair of indexes tracking the performance of funds dedicated to cryptocurrencies and blockchain, the decentralized ledger technology that is the underpinning to bitcoin BTCUSD, -1.79% and other digital currencies.
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A new index, the HFR Blockchain Composite Index, tracks funds that invest in blockchain technology and cryptocurrencies. The other, the HFR Cryptocurrency Index, tracks all funds that invest and trade in various cryptocurrencies directly, HFR said Wednesday.
The blockchain index is up more than 1,500% thus far in 2017, through November, while the cryptocurrency gauge has surged by more than 1,600%.
The performance of the new indexes eclipse traditional hedge fund indexes. The HFRI Fund Weighted Composite Indexm for example, is currently up 7.5% in 2017, according to HFR data that runs through the end of November. The S&P 500 SPX, +0.27% rose more than 18% over the same period.
“While the recent performance has been exciting, trading and investing in these evolving areas requires specialized expertise and involves substantial volatility and risks, both real and structural,” Kenneth Heinz, president of HFR, said in a news release. Heinz said taking these risks into consideration, it is likely that the disintermediation of banks and upended of traditional payment processing that bitcoin and other digital currencies promise, “will continue to grow in an absolute sense and as a component of hedge fund exposures.”
Cryptocurrencies have seen spectacular, and for many worrisome, growth this year. Bitcoin has gone from trading under $ 1,000 at the start of the year to more than $ 17,000 currently, for a gain of about 1,600%. Ether, the second-largest digital currency, has gone from below $ 10 at the end of 2016 to more than $ 700, a gain of nearly 9,000%.
The entire cryptocurrency sector—which includes hundreds digital currencies, more than 90 of which are valued at more than $ 100 million—has a market capitalization of $ 500 billion, according to Coinmarketcap.com.
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HFR said it has been tracking the cryptocurrency-focused hedge funds since 2013, although it didn’t provide data on how many such funds were in operation, nor how much they currently manage. Earlier this week, it was reported that the well-known hedge fund Passport Capital would pull back from its traditional focus in stocks and bonds, and launch a new arm dedicated to cryptocurrencies after underperforming with traditional assets.