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Institutional money is returning to cryptocurrencies. Here’s how a new hedge fund is approaching the markets
It’s no secret that cryptocurrency prices are booming again, with Bitcoin hovering north of $60,000 since late February and memecoin driving a speculative frenzy unseen since the early days of 2022. Yet, investors I speak to seem reluctant to assign the “bull market” label, perhaps marked by the dramatic collapses of the last two years, or recognize that public awareness of the cryptocurrency resurgence is still non-existent.
Despite Bitcoin repeatedly reaching all-time highs, retail traders still appear to be absent from the recent rally, which is instead driven by January prices. approval of Bitcoin ETFs and the long-awaited promise of traditional companies such as asset managers entering this space. Institutional capital will always drive hobbyist traders, and the price explosion started that cycle.
Like Bloomberg reported in December, before ETFs even launched, crypto hedge funds were preparing for this moment. After a brutal 2022, which saw some flagship funds like Pantera Capital plummet by 80%, results have started to improve as Bitcoin recovers. Stoka Capital, founded by a Goldman alumnus who invests primarily in altcoins, gained 268% by the end of November.
New crypto hedge funds have also started to emerge, taking external capital and investing in public and private market assets, from liquid tokens to company shares. In January I reported the launch of Split Capital, founded by former students of LedgerPrime, a trading company acquired by FTX. Several LedgerPrime alumni launched another hedge fund in February, signaling increased trading opportunities and interest from limited partners or outside investors who want to park their money with the new vehicles.
Another new cryptocurrency hedge fund is emerging today: Lekker Capital, founded by Quinn Thompson, who previously worked at digital asset lending platform Maple Finance and traditional investment firm Guggenheim Partners. I spoke with Thompson last week, who told me he’s targeting a $20 million raise for Lekker and expects to begin negotiations in May.
Unlike many crypto hedge funds, which focus on liquid tokens from Ether to smaller altcoins, Thompson said it will invest in both digitally native tokens and public stocks like Bitcoin Miners, Microstrategy and Coinbase, with an approximate split of 50/50 50 between the two types of goods. This strategy is driven by his view of the cryptocurrency market, which he says has been dominated by venture capital-style investments in private companies and was overallocated during the previous cycle.
“The only liquidity events for all these venture funds are IPOs or tokens, and the capital base for investment allocation simply doesn’t exist to actually fund them and be natural buyers in the liquid market,” he said. “You’re getting a return to traditional capital markets now that things are opening up a little bit.”
Thompson told me he believes the broader macro environment supports cryptocurrencies, with the Federal Reserve apparently ready to start cutting interest rates. I asked if he was concerned about regulatory uncertainty, especially after Coinbase loss in court last week. According to him, despite the hostility of the current administration, everything could change with this year’s US elections. “November has the potential to be a huge catalyst for the industry,” Thompson told me. “It’s hard to be too one-sided until then.”
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
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