According to Bloomberg, the first quarter of this year witnessed the launch of 25 new venture-capital and hedge funds focused on cryptocurrency strategies, marking the highest number since Q2 2021. This figure is double the number of funds that closed during the same period and nearly triple the nine funds that emerged in Q1 2023. The number of new crypto funds in the previous year barely surpassed the number of closures following a bear market that left the asset class in shambles. The bankruptcies of hedge funds Three Arrows and Alameda Research have paved the way for new entrants as the market recovers.
"Given the cyclical nature of cryptocurrency, it is highly likely that new crypto-native funds will emerge to help fill the void left by these entities and take advantage of the new opportunities that arise during this cycle," said de Vos. The total crypto-dedicated hedge-fund market has grown from $16.3 billion in December to a higher figure. However, the rate of new fund launches is still significantly lower than the peak period of 2017, when approximately 73 new funds were launched per quarter.
Fundraising for new vehicles is not as straightforward as it used to be. On the venture-capital side, new fund raises tend to be smaller than in 2021 and 2022 due to fewer investors new to the space. In Q1, only $2.62 billion was invested across 631 VC deals, according to VisionTrack. This is less than the $2.9 billion invested across 781 deals in the same period last year, and a fraction of the $7.2 billion invested across 817 deals in Q1 2021.
The resurgence in crypto markets this year can be largely attributed to the January launch of exchange-traded funds (ETFs) that invest directly in Bitcoin, as well as progress toward regulatory approval for ETFs based on Ether, the second largest cryptocurrency. While the ETFs have revitalized the market, they also pose a challenge to hedge funds by offering investors cheap, simple, and safe opportunities for passive exposure to the asset class. "Crypto hedge fund launches are likely to be somewhat smaller than they were a couple of years ago, in part because crypto ETFs have cannibalized a portion of the crypto hedge fund market," said Meegan, who is trying to raise $20 million.