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This is the turn of hedge funds of cryptocurrency under the spotlight.
The United States Securities and Exchange Commission (SEC) will examine dozens of hedge funds, known for their risky trading strategies and higher fees than traditional investment funds. Regulators want to make sure that 100 crypto-hedge funds deliver what they promise investors, according to a Wall Street Journal article.
Private hedge funds are not new to the SEC’s scrutiny because sophisticated trading strategies have kept them on radar regulators before. For example, fund managers need to pay attention to how they market their funds because the novice investor might not understand the risks they inherit from these operations.
A popular strategy is long / short, in which fund managers are betting on both the prospects for a rising stock and its decline, adding layers of debt to trade. This strategy has recently made its way to investing hedge funds, companies like Genesis Capital lending bitcoins to institutional investors for short-term trading, giving fund managers hedging capabilities in the cryptocurrency market .
In the United States, only accredited investors are admitted. The SEC already has hedge funds with over $ 150 million of assets under its responsibility, but it has the jurisdiction to push any private fund that it wants.
The repression of SEC
Meanwhile, the SEC has already repressed the initial offers of coins (OICs), including a number of them that are being studied by the Wall Street regulator. Now he has expanded the scope of his efforts because he seeks to protect investors from bids that seem to bypass securities laws.
According to the history of WSJ, regulators seem to simply look for how their policies might apply to bitcoin hedge funds. If they notice something superficial, of course, they could take other measures.
One of the SEC’s priorities is to ensure that hedge funds offer the type of exposure that fund managers define in their investment documents. Another source of concern is the risk of a security breach in digital wallets during an exchange, such as the one that shook the Japanese Coincheck in January, during which hundreds of millions from NEM were hacked.
Hedge funds could start hearing regulators on the process in Q2.
Performance of hedge funds
Hedge funds suffered more losses in February, and cryptocurrency hedge funds were no exception.
According to HFR, which tracks the performance of hedge funds and also has its own blockchain index, cryptocurrency hedge funds have managed to recover from their lows last month, during which the blockchain index lost 9.5%.
Image from Shutterstock.
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