However, in the meantime, regulators will likely try to limit speculation in cryptocurrencies.
In the last several months, the SEC has become increasingly vocal in warning investors about the risks of cryptocurrencies. The commission also has suspended trading in some companies due to concerns about their claims regarding their token-related announcements.
"One of the things we'll see [is] enforcement here from the regulators," Canaccord's Graham said. He expects that greater regulation will cause a "major price dislocation event for the whole sector."
Bitcoin has soared more than 1,500 percent to near $16,200 over the last 12 months. But it is still down about 18 percent from its all-time high above $19,800 hit in mid-December. Meanwhile, smaller cryptocurrencies have surged hundreds of percent in the last several weeks, bringing the total market value of all digital coins to above $770 billion, according to CoinMarketCap.
Action by regulators could halt those gains. Bitcoin fell more than $2,000 in September when China cracked down on digital currencies.
Spencer Bogart, managing director and head of research at venture capital firm Blockchain Capital, expects that many cryptofunds will not be prepared to handle a monthly decline of 25 percent.
"I think we could easily purge 60-75% of crypto hedge funds in this type of market," Bogart said in an email. "In this environment, funds that can call capital and deploy it counter-cyclically stand to benefit significantly."
More than 120 such funds opened in 2017 for a total of 175 funds, according to financial research firm Autonomous Next.
In contrast to Bogart, Autonomous' global director of fintech strategy, Lex Sokolin, predicts the total number of cryptofunds will nearly triple to 500 this year. But he said the focus will be less on the number of funds and more on assets under management, which he expects to reach $20 billion.