National economies are sinking into a recession but the bitcoin economy remains healthy and is still growing throughout the coronavirus crisis, even surging to $10,000 on May 7.
Crypto hedge funds, in particular, are reaping the benefits of volatility. For example, Eric Ervin, co-founder of Blockforce Capital in San Diego, said his fund’s returns are up 18% so far in 2020.
“In these wild months, we’re capturing half of the upside,” Ervin said, referring to the economic rollercoaster that took off in March. “Bitcoin’s really taken a lot of market share back from Ethereum … really dominated as Ethereum tries to figure itself out.”
It’s important to note bitcoin’s market dominance during a global crisis is a cause of correlation, not causation. The godfather cryptocurrency was already surging in 2019. According to the annual report released Monday by Elwood Asset Management and the consulting company PricewaterhouseCoopers (PwC), the value of assets under management at crypto hedge funds more than doubled in 2019 to reach $2 billion.
According to PwC partner Henri Arslanian, co-author of the report that surveyed over 50 funds, more crypto hedge funds trade ether (ETH), 67%, than any type of crypto derivatives (56%), although bitcoin still reigned supreme in 2019 (97%).
Arslanian said the coronavirus crisis inspired more investors to adamantly ask how hedge fund managers reduce counterparty risks, for example, not leaving too much money on any single exchange. If these concerns are quelled, more investors appear eager to enter the market, he said.
“One macro trend we’ve seen since the coronavirus is more general interest in cryptocurrencies,” Arslanian told CoinDesk in an interview.
The vast majority of these funds serve family offices and high-net-worth individuals, an average of 28 individuals per fund, suggesting the technology’s leading use case isn’t “financial…