Crypto hedge funds are beginning to operate increasingly more like venture capitalists, Bloomberg reports. It is most likely due to falling prices of cryptocurrencies, but the change is also mirrored by new openings. According to Crypto Fund Research, 2018 saw 114 hedge funds open, fewer than venture capital firms—120. Moreover, research also shows crypto hedge funds reported massive losses last year, and 42 of them have shut down, with more likely to follow.
“Funds have silently transformed from hedge funds into venture funds as their liquid portfolios shrank in value, making a very high percentage of AUM illiquid," said Kyle Samani, managing partner at Multicoin Capital Management, a company that has done venture deals side by side with investments into tokens.
Despite the crypto winter, Polychain CEO Olaf Carlson-Wee announced Polychain Capital, the first $1 billion crypto fund, has raised $175 million for a fund with a seven-year lockup period. Meanwhile, Eric Friedman joined BlockTower Capital to work on its new venture strategy.
In order to mitigate the risks, funds opt for acquiring SAFTs—Simple Agreements for Future Tokens—which allow them to get high discounts on the tokens startups are planning to issue in the future, explained Paul Veradittakit, a partner at Pantera Capital Management.