Three Factors Fueling the Surprising Growth of Crypto Funds

Crypto funds have been launching at a record pace, with more than 90 new crypto funds having launched this year alone.

Is why are so many crypto hedge funds and venture capital launching in the current climate? Before addressing this, it's important to briefly discuss the three broad types of crypto funds.

Crypto funds come in a variety of shapes and sizes, but three key types account for the majority of funds.

While somewhat rare outside of the crypto world, hybrid funds are common in the crypto space.

So what's different in the crypto market? Why are funds continuing to launch under such bearish conditions? This divergence is driven by a number of factors including regulation, fund manager demographics, lack of competing products and a possible disconnect between retail investors and crypto fund managers.

This is an important distinction as crypto funds trading exclusively in cryptocurrencies deemed to be commodities may have extremely modest reporting requirements compared to funds trading in securities.

While the vast majority of crypto funds are probably fully or mostly compliant, the number of funds with no paper trail whatsoever does raise some legitimate questions.

To the extent crypto funds face less burdensome compliance than traditional hedge funds, it helps to explain some of the rapid rise in new funds this year.

Who is running most crypto funds? There are many experienced investment managers like Mike Novogratz, who brought a decade and a half of hedge fund experience to his crypto fund, Galaxy Digital.

The growth in crypto funds also has some similarities to those of the ICO market-both seem to rely on continued favorable regulatory treatment, an eventual end to the bearish market for cryptos, and ever-increasing investor interest in the space.