Cryptocurrency might be the only thing more confusing than hedge funds. So cryptocurrency hedge funds could make your head explode. And The New York Times lists more than a hundred of them, few of have celebrated their one-year anniversary yet.
And, from the looks of it, some make megabucks off the confusion alone.
Hedge funds as they’re structured today became popular during the Reagan Revolution of the 1980s. Since then, the hedge fund model involves a privately held company run by professional manager who buys stocks with money invested by wealthy individuals, wealthier families and even wealthier banks. They empower the manager to hedge positions by taking small bets, or “shorts,” on stocks that could go down in value. Regulators allow hedge funds to borrow aggressively to buy more stocks and shorts than cash on hand will allow. The manager charges the investor 2 percent of the money they provide, win or lose. The manager also charges a 20 percent “performance fee” on the gain if the investments actually make money.
Most hedge funds invest mostly in stocks, but they’ve also invested in bonds, options, commodities and even currencies. So it’s an easy leap to cryptocurrencies.