Updated: Dec 1, 2021
Annual GFM report says institutional investors should continue to fuel expansion in the cryptocurrency fund market, as the market anticipates the SEC will approve an ETF within a year.
When looking at the crypto fund universe in 2021, there are at least two significant takeaways from both the current data, as well as the future outlook: One is that even as the crypto fund market continues to grow at a steady pace, there still remains room for significant growth going forward; the other is that while ETFs make up just a small fraction of the fund market today, there appears to be no shortage of demand for the Securities and Exchange Commission to finally approve a crypto ETF for the U.S.
Putting the first takeaway into context, consider that the total number of global crypto funds has grown by an astounding 800% over the past five years, according to the 2021 Global Fund Management (GFM) report published by Coinbase, citing data from Crypto Fund Research (CFR). This expansion – driven largely by the launch of VC and crypto hedge funds between 2017-18 – also saw the total AUM of crypto funds nearly double year-over-year from 2019-20, with more than $36 billion in total assets at the end of last year.
In fact, of the 835 cryptocurrency funds that were in the global market as of Q1 2021, 426 were VC funds and 386 were hedge funds, according to the Q1 2021 Crypto Fund Report published by CFR. Private equity/other account for the other 23 funds, including a handful of crypto ETFs (though these obviously originated outside the U.S.)
And while the number of fund launches peaked in 2017 (291) and has fallen for three consecutive years to 66 in 2020, the number of crypto funds launched has exceeded the number that have closed for three consecutive quarters, with 24 launched in Q1 2021, compared to 13 that have closed.
However, while the total number of funds and the total AUM continue to grow exponentially (with a few blips here and there), only 5% of the recorded funds manage more than $100 million, according to Coinbase’s GFM report, citing data from CFR. In other words, crypto funds remain relatively small; but the number of funds managing less than $100 million continues to shrink, according to CFR data.
So, with the crypto fund management space still poised for expansion, where will this growth come from? One obvious avenue will be the continued money flowing in from institutional investors as bitcoin, ethereum and other cryptocurrencies mature and consistently deliver steady performance; the other will be the introduction of ETFs into the U.S. crypto fund market.