Market decline

Hedge Funds See Declining Crypto Market As An Investment Opportunity

The crypto market cap has fallen more than 40% from its peak of $ 2.5 trillion in early May, but institutional investors continue to rush into the market. Although Bitcoin (BTC) is losing more than half of its value in US dollars and altcoins are reaching almost 70% on average, big players like hedge funds continue to take digital currency investment positions.

From direct exposure to crypto to supporting companies developing products and services in the digital asset space, institutional investors are strengthening their presence in the cryptocurrency and blockchain space. In June, a survey of 100 chief financial officers of hedge funds around the world indicated an expected increase in crypto exposure for hedge funds over the next five years.

As regulated entities continue to explore digital currency investment options, crypto regulations appear to be taking shape in many jurisdictions as well. Meanwhile, in the United States, regulators such as the Securities and Exchange Commission are under significant pressure to adopt a stricter legal framework for cryptocurrencies.

The attraction of investing in crypto remains strong

Earlier in July, Cointelegraph announced that London-based hedge fund giant Marshall Wace is set to build an investment portfolio focused on digital assets. According to the report, the $ 55 billion hedge fund was seeking late stage financing for digital finance companies and blockchain companies working on use cases such as payment systems for digital currencies and coins. stable.

Amit Rajpal, CEO of Marshall Wace Asia Limited, presented the company’s digital asset investment thesis, saying the focus is on projects to redefine financial services, especially in the area of ​​payments. According to Rajpal, digital finance is already changing the architecture of the underlying financial system.

Even before reports of his crypto-focused investment portfolio came out, Marshall Wace had made a few forays into the digital asset space. In May, the hedge fund participated in the $ 440 million fundraiser from stable coin issuer USDC (USDC).

Marshall Wace is just the latest in a growing list of hedge funds and other institutional investors exploring crypto investing options. In April, UK-based asset management firm Brevan Howard launched an $ 84 million crypto investment fund.

Talk to Co-telegraph China Earlier in July, Cornell University professor and Avalanche creator Emin Gün Sirer said the current market downturn had done little to dampen institutional investors’ enthusiasm for crypto exposure. According to Sirer, the legitimacy of crypto as an asset class is “out of the question”, stating:

“I have had contact with pension funds, not hedge funds, but pension funds. Very different coin, much slower but with maybe 10 times as many dollars under their control and they are slowly entering crypto.

Joe DiPasquale, CEO of crypto hedge fund BitBull Capital, also echoed Sirer’s comments, telling Cointelegraph: “Institutional investors are still interested and continue to build positions at key support levels.”

“Naturally, the market hype has abated, but these downturns have historically been opportune times for long-term entry,” added the CEO of BitBull Capital.

A spokesperson for Nickel Digital Asset Management, a $ 200 million crypto hedge fund, also gave an overview of emerging strategies among institutional players in the current cryptocurrency trading. In a conversation with Cointelegraph, the Nickel Digital representative said, “We see active and continued engagement from the entire institutional community, including (but not limited to) pensions, foundations, endowments and funds of hedge funds ”, adding:

“Recent volatility has proven to be an opportunity for some trading strategies (like market neutral arbitrage) while being a headwind for others (beta exposures to underlying crypto assets). In fact, this created an immediate demand for defensive, low volatility funds. The investment objective, sizing and risk tolerance are the critical factors in evaluating any investment opportunity, especially in crypto.

Indeed, Nickel Digital recently rebalanced its cash position due to the current market downturn, a move the company described as an exercise in “financial discipline”. According to fund CEO Anatoly Crachilov, Nickel Digital is keeping its investment powder dry for the future return of parabolic price gains in the crypto market.

Big players welcome more crypto regulation

As more institutional players make forays into crypto, stakeholders say asset managers aren’t worried about regulatory risks. Indeed, most of the attention of financial regulators seems to be focused on the protection of retail investors.

Meanwhile, banks and other regulated entities appear to be receiving clearer mandates from regulators to interact with digital assets. Commenting on the benefits created by adopting clear regulations for cryptocurrencies, the Nickel Digital spokesperson told Cointelegraph:

“We adopt regulation because we believe that regulation brings clarity and clarity brings broader participation in the market. Crypto has years of regulation in the United States, and recent changes in Germany could unlock billions of dollars in the crypto space.

Earlier in July, German authorities adopted a landmark decision allowing institutional funds to allocate up to 20% of their assets under management to cryptocurrencies. The move came despite warnings from Germany’s Federal Financial Supervisory Authority about the dangers of speculative investments.

The new law in Germany could potentially see up to $ 415 billion in investments in the crypto space. Germany’s fund allocation law also builds on previous rulings that put security tokens on a par with other regulated investment vehicles in the country.

Ignoring concerns about the regulatory review negatively impacting institutional involvement in crypto, DiPasquale told Cointelegraph: “Regulatory fears are still present in the crypto space, but there is a trend towards compliance, this which will probably lead to a more lenient attitude in the future. . “

The bulls will return in the fall

While the current crypto downturn provides a premier investment opportunity for hedge funds and other institutional investors, such a strategy most likely hinges on the expectation of a market rebound in the future. As previously reported by Cointelegraph, Sirer predicted that sideways accumulation will dominate crypto price action during the summer months.

Indeed, since falling by more than 50%, Bitcoin has been between $ 32,000 and $ 36,000. Bitcoin’s lack of a significant breakthrough in either case almost meant a repeat of mini-dips and pumps in the crypto market.

However, Sirer said he expects a return to the parabolic upward price path in the fourth quarter. According to the founder of Avalanche, the expected resurgence is expected to begin in October or November.

“I’m really excited about what’s to come because I know there is so much interest in institutions, retail, as well as this new technology that’s about to change the world. […] We are in the early days of a huge movement to restructure the entire financial infrastructure. “

“The bear market is actually a great place to get the job done. The transformation of finance is not going to stop because we have achieved a relative price correction, ”Sirer added to Co-telegraph China. The Cornell University professor also said serious stakeholders are using the current period as a period of consolidation and growth.

Related: Avalanche Founder Emin Gün Sirer “Quite Optimistic” About Crypto Market Outlook

Like Sirer and Marshall Wace’s Rajpal, there is a growing belief that the crypto and blockchain space is on the way to disrupting the global financial system, hence the emerging interest of institutional entities. Even on the retail side, regulated institutions, such as banks, are also keen to offer cryptocurrency-related services.

After seeing millions of dollars pouring into exchange vaults like Coinbase on a daily basis, companies like NYDIG say U.S. banks are keen to get in on the action and start offering Bitcoin trading services to account holders. As such, the company recently announced a series of partnerships that will allow crypto trading directly from clients’ bank accounts in America.

BitBull’s DiPasquale also raised the possibility of a bull market return in 2021 but proposed a date closer to the winter period, adding: “We could see a return in 2021, yes, but the parabolic gains might not be. seen before December or early next year. . “DiPasquale, however, predicted that Bitcoin will end the year above the $ 50,000 mark.


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