An index of about 17 crypto-currency hedge funds from data provider Hedge Fund Research Inc. rose almost 3,000% in 2017 compared to the 8.7% average return across the global hedge fund industry.
But with the sudden and steep drop in the value of Bitcoin recently, hedge funds are becoming more cautious per the Wall Street Journal.
Most of these funds have simply bought the alternative currency on its rise and sold to lock in returns. Now with the huge volatility, the trade is not so simple and the costs and timing of a market exit are more challenging.
And the “smart money” is betting that the market will continue its downward trend. “Data from the Commodity Futures Trading Commission shows that hedge funds overall entered 2018 betting bitcoin prices would fall outweighed those betting it would rise by a factor of four. As of January 16, such short positions still outnumber those taking the opposite bet, the data shows.”