Crypto Funds, Lending and Market Manipulation

The bear market of 2018 triggered the closure of many crypto funds, and a report released last week by PwC and Elwood Asset Management showed that there are far fewer active funds in existence than we had been led to believe.

The PwC/Elwood report mentions some steps that funds are taking to boost recurring income, such as market making and advisory roles.

Given the growing demand for crypto lending services, this potential income stream could be enough to give a number of funds a greater chance of survival, as well as inject liquidity and diversity into the sector.

Demand for crypto lending is growing at an astonishing pace, as the inflow of funds into lending startups and the demand from institutions shows.

While there is no concrete data on the extent to which crypto funds lend out their assets, there are signs that this practice is spreading.

Now, what if I knew that would happen, and used the recall as part of a strategy to boost my fund valuation? True, I probably couldn't lock in the profit by selling altcoin A without pushing the market back down, but it could serve to fix a higher value on a certain date, which would boost my reported performance, which in turn could encourage more investment in my fund.

The drying up of that revenue stream could mean that I may end up having to liquidate my fund - just imagine what my dumping all of my altcoin holdings on the market would do to other funds' valuations.

One solution could be for investors to insist that the funds they back do not engage in this type of lending activity.

If the returns from lending boost fund performance, am I not obliged to seek the best possible return for my investors? Most investors in crypto hedge funds are themselves institutions, who are also judged by their performance.

In the absence of clear rules, it is up to the sector to keep an eye on developments in both crypto fund administration and crypto asset lending.