Cryptocurrency hedge funds have posted hefty gains so far this year, benefiting from the surge in transactions that allow lenders and borrowers to transact without banks, as well as a steady rise in the bitcoin price.
A crypto hedge fund index launched in September 2018 by the crypto fund Vision Hill Group showed a return of 126% in 2020.
Non-crypto hedge fund sectors tracked by another data group, BarclayHedge, were also in positive territory, but up a modest 1.70% through September.
The emergence of decentralized finance, or DeFi, which are crypto platforms that facilitate lending outside of traditional banking institutions, was at the core of crypto funds’ robust performance this year, said Scott Army, founder, and chief executive officer of Vision Hill, which has exposure in DeFi also.
The total number of loans on DeFi platforms was $11.1 billion on Thursday, industry site DeFi Pulse data showed, up 180% from roughly $4 billion in August. DeFi sites run on open infrastructure, with algorithms that set rates in real-time supported supply and demand.
Framework Ventures, a $100-million risk capital fund and therefore the biggest investor within the DeFi space, believes DeFi will soon have its mainstream moment.
“Users try to vote with their dollars in terms of how they view the capabilities of DeFi,” said Michael Anderson, co-founder of Framework Ventures, noting that some DeFi platforms have more volume than the much larger digital asset exchanges.
Meanwhile, bitcoin’s quite 80% increase this year also helped propel hedge funds, because it drove rallies within the crypto market.
Off the Chain Capital posted returns of 94% thus far in 2020 and average annual returns of 112% since its inception in 2016, purchasing at a reduction bitcoin claims from those impacted by the Mt. Gox hack in 2014, said Brian Estes, the firm’s chief investment officer, and managing partner.
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