Cryptocurrency Funds Show Gains In Spite Of Selloff

Cryptocurrency funds showed strong gains in 2021 in spite of a selloff of the digital assets in December, according to an analyst.

BarclayHedge, a division of Chicago-based Backstop Solutions, said its cryptocurrency traders index rose by 138.1 percent for 2021, on results from about 39 funds, or less than half of the funds it tracks.

The result followed record gains of 173 percent in 2020, as crypto funds benefited from the extreme volatility in financial markets caused by the Covid-19 pandemic.

Bitcoin rose sharply in 2021 from around $34,000 (£24,800) in January, to roughly double that value in November, when it hit an all all-time high of $69,000.

Volatility

Ether, which operates on the Ethereum blockchain, also surged in value during the period.

But during the month of November cryptocurrency-centric funds showed losses of around 11 percent as Bitcoin dropped by 19 percent and Ether slumped by 20 percent.

“Crypto was the only sub-sector that didn’t make money in December, as many of the industry’s headline assets suffered whiplash from a sharp price downturn,” said Ben Crawford, head of research at BarclayHedge, in a research note.

Bitcoin, the most established cryptocurrency, has continued to slide in January, although it is still well above its value of a year ago.

Nevertheless, in spite of their volatility cryptocurrencies have continued to benefit from strong institutional interest and greater acceptance from regulators around the world, BarclayHedge said.

Acceptance

“Bitcoin is no longer viewed as an esoteric digital currency used only on the fringes by techies and cypherpunks,” said CoinDesk in its annual cryptocurrency review for 2021. “There is an air of legitimacy now.”

El Salvador has adopted Bitcoin as a legal tender, while Rio de Janiero has announced new plans to dedicate part of its reserves to the cryptocurrency.

Speaking at Rio Innovation Week last week, Rio mayor Eduardo Paes announced the launch of a working group to study ways to incentivise the use of cryptocurrencies to boost the city’s economy, such as offering discounts when residents pay taxes in Bitcoin.

“We are going to launch Crypto Rio and invest 1 percent of our public funds in cryptocurrency,” Paes said, according to business daily ValorEconomico.

Miami mayor Francis Suarez, another outspoken proponent of digital currencies, also participated in the event.

Many regulators continue to warn investors away from cryptocurrencies, however, with China last year launching a broad crackdown on their mining and use.