The significant downfall of the cryptocurrency bear market predict troubled waters. Anthony Pompliano, Morgan Creek Digital founder observes that such a bearish market could eventually lead witness crypto hedge funds soon packing their bags.
Pompliano, explains in his blog post that how these drastic drops affected crypto enterprises. He throws light on crypto hedge funds and “high water mark issues”. The fund managers obtain profits at par with their performance relative to associated crypto asset prices for a pre-defined investment period. 2017 was recorded to be a lucrative year for all crypto assets.
However, 2018 has turned to be completely different, “We have seen 50-80% decreases in net asset values in some funds since then. This means these fund managers will not receive a performance fee in 2018, which drastically reduces the income of the individual manager. With reference to the numbers, earning these manager’s next commission’s will also be difficult. They will need to more than double their fund’s net asset value from present-day prices.”, Pomp explained.
He went on to further explain that fund managers might simply return investor funds and then wait again to open a fresh fund with new parameters.
Pomp posed a question on why these funds have not yet closed, concluding that “ The most significant value proposition is that many of the managers are young/inexperienced and they won’t realize the issue until they don’t receive their performance fee for 2018. If true, we could be less than 60 days away from many of the fund managers experiencing the pain of being ineligible for the bulk of their compensation”.
Future of ICOs
Pompliano also mentions about ICOs referencing to their amassed fortunes in the past year. With more regulatory blow there could be trouble lurking for the ICOs as well.
The caveat is that most ICOs raise funds via cryptocurrencies, with such bearish trends ICOS could end up shelling more money than they actually own. ICOs may not be able to cope up with fund requirements to pay back investors.
