Investor: Bloodbath is Necessary Before Bear Market Bottom
“Things will get much worse before they get better,” warns investor Anthony Pompliano, adding that many initial coin offerings (ICOs) will sink in the face of US Securities and Exchange Commission (SEC) regulations, as well as the plummeting prices. However, he believes that this capitulation is necessary for the bear market to bottom out completely.
Pompliano, co-founder and partner at Morgan Creek Digital, a digital asset management firm backed by multi-billion dollar investment advisor Morgan Creek Capital Management, thinks that the current market crash is far from over, but adds, “Remember, bear markets get rid of the tourists so that the true entrepreneurs can focus on building sustainable value.”
He wrote in a commentary, published on the Off The Chain website, that he believes that crypto hedge funds are going to start shutting down due to high water mark issues - a clause in fund documents that ensures fund managers only receive their performance fee if the fund’s net asset value is higher today than in any previous investment period.
Pompliano (in July, he forecasted that Bitcoin will reach USD 50,000 by the end of 2018) added that fund managers are probably not going to be able to achieve those levels of profits “until at least 2020.” This, then, brings problems to ICO projects: not only will many of those have to either prove they were following SEC regulations or pay financial fines, but the market drop might well mean that they can’t afford the fines, or for that matter, the project itself.
As reported, in the first half of the year, crypto hedge funds appeared to remain optimistic on the space, with existing firms expanding their operations and new ones being opened. Through July 31, there were 96 new crypto hedge funds and venture capital funds, an annual pace of 165. This would surpass the record 156 crypto funds launched in 2017.
Performance of the Digital Asset Index launched by Morgan Creek in August:
Meanwhile, the ICO market is indeed failing lately, as a recent report showed: the third quarter brought in only USD 1.8 billion, compared to the USD 8.3 billion in Q2. Projects that have raised funds through ICOs were also slowing down due to ETH price swings. To prevent potential panic selling, there are crypto loan companies that offer loans as an alternative to cashing out. But whether ICOs are struggling or not can be hard to tell, as they are not contractually obliged to disclose their financial positions.
Meanwhile, Chris Burniske, author and partner at the crypto-focused venture capital firm Placeholder, still believes that it is possible to hold out right now. “Bear markets strengthen the survivors. It's okay to feel sick through the process, it's these depths that later give strength,” he tweeted, adding, “But don't get paralyzed by any sickness or anxiety you may feel — be aware of it, acknowledge it, then go back to your fundamentals (ie, buidling, analyzing, investing, etc) with sharpened focus.”
Still, although this applies to many individual investors, it still remains to be seen how projects will survive this bloodbath - and which ones will. Pompliano concludes his blog post with, “Watch closely for the founders who are quietly toiling away with talented teams right now…”