Analyzing Bitcoin's Position: Insights from Top 5 Cryptocurrency Funds

Cryptocurrency adoption doesn't occur overnight; it evolves in stages. After observing a remarkable performance week for Bitcoin and Ethereum, one could question whether we are nearing a point when the wider public is ready to fully accept cryptocurrency as a future medium of exchange.

To understand the current scenario, let's analyze the five stages of mass adoption. The initial stage is driven by the innovators, typically the younger generation with high-risk tolerance, who are able to identify the potential of emerging technologies and are financially capable of betting on new ventures.

Influenced by these innovators, the early adopters form the second stage. Bitcoin achieved this milestone in 2013 when Coinbase sold $1 million worth of bitcoin in a month at $22 per coin. Following this, service providers like OkCupid and Foodler (now Grubhub) started accepting it as payment.

The third stage, the "early majority," includes innovators and early adopters along with a specific group of investors who endorse the novel concept. With Bitcoin, this means cryptocurrency hedge funds. Here's a profile of the top five in this category.

Digital Currency Group / Grayscale Investments

Digital Currency Group (DCG), established in 2015 by Barry Silbert, is an early adopter with holdings in Coinbase, Ripple, and Bitpay. From 2016 to 2018, they invested in over a hundred cryptocurrency projects, with an average seed round of $3.24 million.

DCG supported several renowned cryptocurrency start-ups, such as Circle, Blockchain, Kraken, Parity, and Ledger. Grayscale, a DCG division that directly invests in cryptocurrency, reported an AUM of $2.7 billion in 2019.

Grayscale's Bitcoin Trust fund gained 300% in the first half of 2019, and they reported that 84% of their investors were institutional. These figures suggest that Bitcoin is firmly in the early majority phase.

There's potential for DCG to be the first company in the space to go public, possibly as early as next year. With considerable exposure in Bitcoin and Ethereum, that could be the impetus required for public mass adoption. The projected valuation is over $4 billion.

Polychain Capital

Founded by Olaf Carlson-Wee in 2016, Polychain Capital is another crypto-centric hedge fund with a substantial interest in Bitcoin. They currently manage just under $1 billion in cryptocurrency, up from $591 million five years ago.

Polychain's crypto funds receive considerable support from venture capital firms. They are known for uniting many large players in early funding rounds, including a $200 million round with Sequoia Capital and Union Square Ventures in 2017.

Polychain has invested in Coinbase, Kik, and Celo, among others. In 2020, they invested heavily in DeFi. They are now the world's largest crypto hedge fund and the 10th largest holder of the Ethereum-based token yearn.finance (YFI).

Pantera Capital

Initially a traditional hedge fund established in 2003, Pantera Capital shifted their focus ten years later to invest in cryptocurrency and blockchain technology projects. Currently, they manage over $700 million in assets.

Pantera Capital describes itself as the "first" US Bitcoin investment firm. Their Bitcoin Fund (PBF), launched in July 2013, ranks among the best performing investment funds across all asset classes.

Dan Morehead, founder of Pantera Capital, predicted in July 2019 that Bitcoin would hit $42,000 by the end of the year. That didn't materialize, but Bitcoin's value has been climbing, indicating further progress toward mass adoption.

Bitcoin reached a record high of $19,260 on December 15, 2017, only to plummet to $3530 a year later. Amid these fluctuations, former Goldman Sachs partner Michael Novogratz established a $100 million crypto hedge fund named Galaxy Digital.

Despite the volatile market, Novogratz continued to invest in crypto-related projects such as Bakkt, BlockFi, and Ripple, attracting investors from non-crypto domains and listing the company on Canada's TSX exchange.

While Galaxy Digital may not be categorized as an innovator or an early adopter, it plays a critical role as part of the early majority propelling mass adoption. By attracting new stakeholders and investing his personal assets, Novogratz is advancing Bitcoin's acceptance.

Andreessen Horowitz

Well-recognized in Silicon Valley, Marc Andreessen and Ben Horowitz's venture capital firm has directed IPOs for notable tech startups including Box, Groupon, Lyft, and Facebook. They manage over $7 billion in assets since their establishment in 2009.

The fact that an established VC firm like Andreessen Horowitz supports crypto and blockchain technology marks a significant stride towards mass adoption. They have partnered with Polychain in 2018 to invest $15 million into Dfinity.

Andreessen Horowitz also runs a crypto investment fund, 16z, worth over $300 million. Though not a substantial figure considering the firm's multi-billion-dollar management, it is significant as the company is not exclusively dedicated to cryptocurrency.

The Blockchain's Disruptive Impact on the Digital World

The final stages of mass adoption include the "late majority," who have been observing but waiting for more evidence, and the "laggards," who only join once the risk has sufficiently subsided.

Given the institutional support and the increasing ways to securely enter the market, Bitcoin is currently in the early majority phase of mass adoption. Blockchain technology is disrupting the digital world, with awareness on the rise.

According to Bitcoin blockchain behavioral analysis, 60% of investors are holding bitcoin for a year or longer. This percentage was 30% in 2012. This year alone, 8.7% of bitcoin has been removed from the exchange and is likely being held for long-term use.

As Bitcoin moves into the early majority phase and more value is transferred into its ecosystem, the volatility traditionally associated with this asset class should start to stabilize. While this might not be good news for traders, it is excellent for long-term investors and late majority adopters.

Bitcoin as a Portfolio Diversifier

Although termed a digital "currency," Bitcoin and other crypto assets like Ethereum are increasingly being considered a separate asset class. They don't perfectly align as commodities, aren't traditionally inflation-prone, and aren't influenced by general market fluctuations.

In a Coinshares report, the author states, "If we are to examine Bitcoin in terms of its investability, we believe there is a necessity to classify Bitcoin and its likely performance in a mature state, where investors are more settled as to its identity."

This is crucial. Bitcoin won't reach maturity until it moves through the early majority stage of mass adoption. Chart patterns already reflect a decline in volatility this year, but maturity will only occur once this stabilizes further.

Bitcoin in 2020 and Beyond

Bitcoin gains in 2020 have been extraordinary. On January 1st, it opened at $7,182. Now, it's over $18K, a gain of 128.65%. Long-term investors who allocated just 4% of their portfolios to Bitcoin experienced an additional net gain of 10% this year.

Does this mean you should disregard traditional investments and focus entirely on crypto? Definitely not. The technology is still developing and nothing is guaranteed in investments. However, there is a strong likelihood that you will realize some financial benefits from this asset class in the upcoming years.

For further insights into Bitcoin and cryptocurrency investments, we recommend checking out Tickeron’s Bitcoin articles in the “Cryptocurrencies and Blockchain” section of their Trading 101 resources. Here, you can learn more about Bitcoin, blockchain, Ethereum, Ripple, and associated tax implications and regulations.

While the cryptocurrency landscape continues to evolve and grow, prominent crypto funds such as Digital Currency Group, Polychain Capital, Pantera Capital, Galaxy Digital, and Andreessen Horowitz are not only making significant strides in their portfolios but also driving mass adoption of cryptocurrencies like Bitcoin. Despite the inherent risks and volatility of cryptocurrencies, they are emerging as an integral part of investment portfolios, demonstrating their potential as a new asset class.

Tickeron's Offerings

The fundamental premise of technical analysis lies in identifying recurring price patterns and trends, which can then be used to forecast the course of upcoming market trends. Our journey commenced with the development of AI-based Engines, such as the Pattern Search Engine, Real-Time Patterns, and the Trend Prediction Engine, which empower us to conduct a comprehensive analysis of market trends. We have delved into nearly all established methodologies, including price patterns, trend indicators, oscillators, and many more, by leveraging neural networks and deep historical backtests. As a consequence, we've been able to accumulate a suite of trading algorithms that collaboratively allow our AI Robots to effectively pinpoint pivotal moments of shifts in market trends.

 Disclaimers and Limitations

Go back to articles index