(BlockBar) The closure of many crypto funds were triggered by the the bear market of 2018. A report which was released last week by PwC and Elwood Asset Management showed that there are far fewer active funds in existence than there had been led to believe. It is very true that being a crypto fund manager is not at all easy. And here’s the increasing competition and pressure on fees with unruly market and elusive valuation.
This potential income stream could be enough to give a number of funds a greater chance of survival, given the growing demand for crypto lending services. It can inject liquidity and diversity into the sector as well. However, it could also add hidden risk to the market overall.
According to the PwC/Elwood report, the median (mid-point) fee is 2%. But there are signs showing that they are coming down. The report states that the average crypto fund fee is 1.72%, which means that many charge significantly less. The pressure is even more in mutual and index funds because here fees are moving to zero or even lower.
The demand for crypto lending is growing at a very surprising pace. There is no concrete data on the extent to which crypto funds lend out their assets. Although there are signs that this practice is spreading.
On the positive side, increased lending of crypto assets could increase speed and price discovery, the greater number of transactions makes it easier for a market to express its views. A growing demand for short selling will enhance liquidity. This helps to develop a pool of natural buyers. This develops a “soft” floor for an asset price. Though “more liquid” does not necessarily mean “liquid,” and here is where the risk of market manipulation could seep in.
There could be one solution for investors and that is to insist that the funds they back do not engage in any type of lending activity. Regulation can be done as is happening in traditional finance, where it could come in and establish rules over transparency and oversight.But to reach mainstream acceptance, crypto markets have enough hurdles to overcome.