Dado Ruvic/Reuters
- Cryptocurrency hedge funds posted their best gain since 2019 in February, rising 35%.
- Data provider Eurekahedge said the growing industry has around $3.4 billion under management.
- Crypto hedge funds climbed almost 200% in 2020 as the bitcoin price soared.
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Cryptocurrency hedge funds gained 35% in February, new data has shown, with the relatively new institutions far outstripping the broader market as the price of bitcoin soared to record highs.
An index tracking hedge funds that focus on cryptocurrencies from data provider Eurekahedge gained 35% in February, capitalizing on bitcoin's rise of around 36.5%. That was the best performance since May 2019, taking year-to-date gains for the sub-sector to 74.9%.
The funds have continued to soar after a remarkable rally in 2020, when the Eurekahedge cryptocurrency hedge fund index shot up 198%.
The industry is new and relatively small, Eurekahedge head analyst Mohammad Hassan told Insider, making up just 0.2% of the global hedge fund business with around $3.4 billion under management.
But Hassan said it's a growing area. "Strong performance in the underlying crypto-asset markets along with bubbling curiosity from institutions has been supportive of the space," he said.
Hedge fund managers as a whole were up 3% in February. That outpaced the MSCI all-world stock index which climbed 2.7%, the third month of outperformance in a row.
Hedge funds are investment firms with more leeway to invest how they see fit, in a range of asset classes, than traditional institutions.
Bitcoin's meteoric rise has naturally attracted many hedge fund managers, with Mike Novogratz's Galaxy Digital a prime example. Crypto hedge funds can follow a number of strategies, including betting against the bitcoin price, and invest in a range of currencies.
The funds are riding high thanks to the rally in bitcoin, which is up more than 740% over the last year. The price rose around 36.5% in February and was up roughly 25% in March to $56,600 on Wednesday, according to Coinbase and TradingView data.
However, it remains to be seen how well the industry would cope with a price crash, which some key players have warned could be coming after the recent rally.