Enormous Hedge Funds Turn Their Eyes To Crypto. How Will It Affect The Market?
March 09 2022 - 7:48PM
NEWSBTC
Are hedge funds ready to go all-in on cryptocurrencies? Probably
not, but some of them are definitely dipping their toes in. The
thing is, those toes are enormous. In the article “Mainstream Hedge
Funds Pour Billions of Dollars Into Crypto,” the Wall Street
Journal does a deep dive into the phenomenon. And we get a closer
look into who’s doing what and who isn’t there yet. According to
Coinbase’s numbers, “institutional investors as a whole traded
$1.14 trillion of cryptocurrencies in 2021, up from $120 billion
the year before, and more than twice the $535 billion for
individual investors.” Those numbers blast past predictions made
just nine months ago, which, of course, NewsBTC covered: “As per
Intertrust, the results of the survey indicate that hedge funds
plan to increase their crypto assets in the next five years. An
average figure based on the responses shows that by 2026, funds aim
to keep $313 billion in digital assets, which is around 7.2% of
their total assets.” Why are they investing so much? And, what are
the funds that abstain thinking? That’s what we’re here to find
out. Let’s start with a quote from Michael Botlo, who ran Quantbot:
“The crypto universe is now liquid and large enough to be tradable.
Hedge funds are seeing their own investors demand that the firms
get involved.” Which Hedge Funds Are In And What Are They Doing?
The latest news point to Brevan Howard Asset Management and Tudor
Investment Corp., property of Paul Tudor Jones, who a few months
ago said bitcoin is 100% certain. What are these hedge funds doing,
exactly? Let’s quote the WSJ: “Brevan Howard launched a
cryptocurrency hedge fund in January that will begin accepting
outside investors. The fund is making bets on the direction of
bitcoin, ether and other cryptocurrency prices, while also
searching for arbitrage between currencies.” “Brevan Howard
has a new crypto division, BH Digital, created in September, which
manages over $250 million and has 12 portfolio managers.” “Mr.
Jones has been buying cryptocurrencies to try to protect against
rising inflation.” Ok, great, but, why are those hedge funds going
that route? Galaxy Digital Holdings’ Robert Bogucki tells us, “More
funds see crypto as a fifth asset class.” And then, proceeds to
give us some real alpha into the hedge fund’s strategy: “One
difference from stock trading: Most hedge funds are avoiding
shorting cryptocurrencies, says Mr. Bogucki, worried that these
currencies might shoot up in price, leading to quick and big
losses. Most funds have focused on buying tokens and trading
futures, rather than playing options markets, which can be harder
to trade though option activity is growing.” BTC price chart for
03/09/2022 on Bitstamp | Source: BTC/USD on TradingView.com Why Are
The Hedge Funds Going That Route? The reasons are more cut-throat
than people might think. For example: “The crypto market is
relatively new with ample “inefficiencies,” or opportunities for
big firms with access to timely and accurate information to
profit.” “The crypto market is also full of individual and
inexperienced traders who often do poorly in squaring off with
fast-moving funds.” “Wall Street firms haven’t established
dominance, creating potential opportunities for new players.”
“Traditional hedge-fund trading techniques often work in crypto,
especially those focused on price and volume trends.” What About
The Naysayers? Not all hedge funds are on board with
cryptocurrencies. The article mentions Elliott Management Corp’s
Paul Singer who “has been outspoken in his skepticism of
cryptocurrencies”. Also, Citadel’s Ken Griffin. It’s worth noting
that Ken Griffin was slamming bitcoin four years ago, but, recently
he announced that Citadel Securities will offer cryptocurrency
services. As reported by Bitcoinist: “In an interview with David
Rubenstein of Bloomberg Wealth, Griffin mentioned that the current
geopolitical conflicts create remarkable downward slips of
volatility with the markets. Concerning digital assets, the Citadel
founder had a turnaround in his stance as he revealed the plans of
his company stepping into the crypto market this year.” Ok, but,
why are these hedge funds against cryptocurrency investing? The
article quotes Squarepoint Capital’s Maxime Fortin saying that
“there are significant regulatory hurdles.” Also, Raposa’s Agustin
Lebron, who says: “In many ways, trading crypto is analogous to
other trading assets, but there are different kinds of risks. By
the time you’re ready to hit the button and trade for real, the
crypto world may have moved on.” So, the crypto ecosystem moves too
fast and is not regulated enough for some hedge funds. Got it, but,
what about first-mover advantage? Isn’t the opportunity worth the
shot? Featured Image by Hunters Race on Unsplash | Charts by
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