Are hedge funds able to go all-in on cryptocurrencies? In all probability not, however a few of them are undoubtedly dipping their toes in. The factor is, these toes are huge. Within the article “Mainstream Hedge Funds Pour Billions of Dollars Into Crypto,” the Wall Road Journal does a deep dive into the phenomenon. And we get a more in-depth look into who’s doing what and who isn’t there but.
In line with Coinbase’s numbers, “institutional buyers as an entire traded $1.14 trillion of cryptocurrencies in 2021, up from $120 billion the yr earlier than, and greater than twice the $535 billion for particular person buyers.” These numbers blast previous the predictions a survey made simply 9 months in the past, which after all NewsBTC lined:
“As per Intertrust, the outcomes of the survey point out that hedge funds plan to extend their crypto belongings within the subsequent 5 years.
A mean determine primarily based on the responses reveals that by 2026, funds goal to maintain $313 billion in digital belongings, which is round 7.2% of their complete belongings.”
Why are they investing a lot? And, what are the funds that abstain considering? That’s what we’re right here to search out out. Let’s begin with a quote from Michael Botlo, who ran Quantbot:
“The crypto universe is now liquid and huge sufficient to be tradable. Hedge funds are seeing their very own buyers demand that the companies become involved.”
Which Hedge Funds Are In And What Are They Doing?
The most recent information level to Brevan Howard Asset Administration, and Tudor Funding Corp., property of Paul Tudor Jones, who just a few months in the past said bitcoin is 100% certain. What are these hedge funds doing precisely? Let’s quote the WSJ:
- “Brevan Howard launched a cryptocurrency hedge fund in January that can start accepting outdoors buyers. The fund is making bets on the course of bitcoin, ether and different cryptocurrency costs, whereas additionally looking for arbitrage between currencies.”
- “Brevan Howard has a brand new crypto division, BH Digital, created in September, which manages over $250 million and has 12 portfolio managers.”
- “Mr. Jones has been shopping for cryptocurrencies to attempt to defend in opposition to rising inflation.”
Okay, nice, however, why are these hedge funds going that route? Galaxy Digital Holdings’ Robert Bogucki tells us, “Extra funds see crypto as a fifth asset class.” After which, proceeds to offer us some actual alpha into the hedge fund’s technique:
“One distinction from inventory buying and selling: Most hedge funds are avoiding shorting cryptocurrencies, says Mr. Bogucki, nervous that these currencies may shoot up in worth, resulting in fast and large losses. Most funds have targeted on shopping for tokens and buying and selling futures, quite than enjoying choices markets, which may be more durable to commerce although choice exercise is rising.”
BTC worth chart for 03/09/2022 on Bitstamp | Supply: BTC/USD on TradingView.com
Why Are The Hedge Funds Going That Route?
The explanations are extra cut-throat than folks may assume
- “The crypto market is comparatively new with ample “inefficiencies,” or alternatives for giant companies with entry to well timed and correct data to revenue.”
- “The crypto market can also be filled with particular person and inexperienced merchants who usually do poorly in squaring off with fast-moving funds.”
- “Wall Road companies haven’t established dominance, creating potential alternatives for brand spanking new gamers.”
- “Conventional hedge-fund buying and selling strategies usually work in crypto, particularly these targeted on worth and quantity traits.”
What About The Naysayers?
Not all hedge funds are on board with cryptocurrencies. The article mentions Elliott Administration Corp’s Paul Singer who “has been outspoken in his skepticism of cryptocurrencies”. Additionally, Citadel’s Ken Griffin. It’s value noting that Ken Griffin was slamming bitcoin 4 years in the past, however, lately he introduced that Citadel Securities will offer cryptocurrency providers. As reported by Bitcoinist:
“In an interview with David Rubenstein of Bloomberg Wealth, Griffin talked about that the present geopolitical conflicts create exceptional downward slips of volatility with the markets.
Regarding digital belongings, the Citadel founder had a turnaround in his stance as he revealed the plans of his firm moving into the crypto market this yr.”
Okay, however, why are these hedge funds in opposition to cryptocurrency investing? The article quotes Squarepoint Capital’s Maxime Fortin saying that “there are important regulatory hurdles.” Additionally, Raposa’s Agustin Lebron, who says:
“In some ways, buying and selling crypto is analogous to different buying and selling belongings, however there are completely different sorts of dangers. By the point you’re able to hit the button and commerce for actual, the crypto world might have moved on.”
So, the crypto world strikes too quick and isn’t regulated sufficient for some hedge funds. Acquired it, however, what about first-mover benefit?
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