Hedge Funds Investing Billions In Crypto (#GotBitcoin)
Billionaire investor Steven Cohen, once dubbed the “Hedge Fund King,” has reportedly entered the crypto space. Hedge Funds Investing Billions In Crypto (#GotBitcoin)
Autonomous Partners was founded last December by Arianna Simpson, a venture capitalist with a history in the bitcoin space, including a time at bitcoin wallet startup BitGo. Her crypto fund has already secured investments from big names including Coinbase CEO Brian Armstrong, Union Square Ventures and Craft Ventures.
While the size of the new investment was not revealed, it’s not the first time Cohen Private Ventures has invested in Simpson’s projects. In 2015, her venture fund, Crystal Towers Capital, also received an investment from the firm.
Simpson told Fortune that Autonomous Partners is currently concentrated on smaller, “next generation” cryptocurrencies, though it invests to some extent in major cryptos like bitcoin and ether.
Arca’s Flagship Crypto Hedge Fund Is Up 77% in 2020
Arca Capital Management’s flagship hedge fund – the Arca Digital Assets Fund – is up 76.74% in 2020, even as some cryptocurrency-focused hedge funds appear to be floundering and still others are folding due to lackluster demand.
* According to a monthly investor note obtained by CoinDesk, Arca Digital Assets Fund, which invests in crypto companies’ tokens, equities and bonds, has grown 9% or more every month this year except for in February (-3.24%) and March (-4.36%) when it followed global capital markets’s virus-induced plunge.
* The fund’s 76.74% year-to-date gains beat the S&P 500 (+1.12%), Bloomberg’s crypto index BCGI (+38.01%) and bitcoin (+30.39%). January’s 35.37% growth was the fund’s strongest single month of 2020. Last month it gained 9.9%, the investor note shows.
* Arca’s Investment Adviser registration documents reveal that Arca Digital Assets Fund had a gross asset value of $2,976,028 as of March 30. A source familiar with the matter told CoinDesk that Arca has doubled its assets under management every quarter of 2020.
Crypto Hedge Fund Looks For $50M To Buy DeFi Tokens Amid Market Pullback
The cryptocurrency money manager Panxora seeks to raise up to $50 million for a new hedge fund to buy digital tokens associated with the fast-growing decentralized finance (DeFi) sector.
DeFi is a segment of the blockchain industry consisting of automated lending and trading platforms that aim eventually to displace banks and Wall Street firms. But in a sign of just how fast-moving and fickle digital-asset markets can be, the new fundraising effort is getting underway just as prices are tumbling for some of the leading DeFi projects, including Yearn.Finance and Aave.
“This has got the potential to really change the way finance is carried out,” Panxora CEO Gavin Smith said in an interview.
DeFi projects, often referred to as protocols and mostly built atop the Ethereum blockchain, have soared in popularity this year.
It has been fueled by the “yield farming” craze that encourages crypto traders to sock digital assets into the trading and lending systems in pursuit of high interest rates, token rewards and fast gains. Dollar-linked tokens known as stablecoins can fetch annualized rates up to 20% through Yearn.Finance, versus 0.01% for a savings account with JPMorgan Chase, the largest U.S. bank.
Collateral locked into DeFi projects surged to $13 billion earlier this month, according to DeFi Pulse, a 20-fold increase since the start of the year. Big cryptocurrency exchanges like Binance and Coinbase have rushed to cash in on the trend, listing DeFi tokens while acknowledging that a growing share of market volumes might eventually migrate to decentralized trading platforms.
But just in the past week, the trend has reversed; total collateral in the systems has declined to about $9.5 billion. And as prices tumbled for bitcoin (BTC), the largest cryptocurrency, and ether (ETH), the native token of the Ethereum blockchain, DeFi-affiliated tokens fell even harder.
Aave, a decentralized lender, saw its LEND tokens fall by 12% during the seven days through Tuesday, according to Messari, a cryptocurrency data firm. OMG’s OMG tokens have plummeted 54%, while Yearn.Finance’s YFI tokens are down 29%.
It’s been “an absolute bloodbath,” Messari analysts wrote Tuesday in their daily newsletter. “DeFi’s casino summer could be coming to an end.”
Cryptocurrency analysts say DeFi systems are likely to grow over the long term, though short-term risks are high in the nascent market, and many of the digital tokens are so new that they can be difficult or even impossible to value using anything resembling traditional financial analysis.
Chainlink, a so-called blockchain “oracle” that supplies price feeds to decentralized protocols, is the top-performing digital asset this year among those with a market value of at least $1 billion, climbing more than fourfold in 2020. And that’s after a 45% decline just this month.
“We expect the market to be volatile in the early years,” Smith said. “While there is great potential there will inevitably be setbacks along the way.”
Panxora’s new hedge fund, based in the Cayman Islands and scheduled to start trading on Nov. 2, will primarily buy tokens listed on big centralized cryptocurrency exchanges rather than from the roster of decentralized, automated exchanges like assembled by DeFi developers.
Smith, a former metals-pricing analyst for the Singaporean commodities-trading firm Trafigura, says that’s primarily because few if any decentralized exchanges can guarantee sufficient compliance with anti-money-laundering rules, and also because a token listing from an exchange theoretically implies some level of vetting.
“We have to offer it as a conventional hedge fund that invests in these protocols,” Smith said.
Hedge Fund Predicts $115K Bitcoin Price And The Fall Of ‘Speculative’ Altcoins
Analysts say Bitcoin and Ether’s growing dominance of the crypto market are signals that the current bull market is drastically different than the last one.
New data from Pantera Capital, an investment firm and hedge fund, suggests that Bitcoin’s (BTC) current price action is closely following the stock-to-follow model’s trajectory and the firm’s analysts believe BTC will reach $115,212 by Aug. 1.
Bitcoin’s parabolic rally may have placed the price a bit ahead of the model’s projection and this week’s 28% correction sent temporary shivers across the market but sharp corrections and short consolidation periods are characteristic of bull markets.
The model focuses on the price impact of Bitcoin halving events that cut the amount of Bitcoin minted every block in half every 4 years.
According to the model, the impact of decreasing Bitcoin’s supply becomes present roughly 6 months after each halving. When Bitcoin price halved on May 11, 2020 the price was around $8,000 and 6 months later BTC was trading above $15,000 and on the verge of entering a parabolic rally to a new all-time high.
The chart above shows the progress of Bitcoin’s price in the days after each halving. A similar pattern developed over the past two halvings, just with a differing time span. The current BTC performance appears to be in between the 2012 market 2016 cycles, which has the potential to lead to a price of Bitcoin between $300,000 and $400,000 around 450 days after the last halving, or roughly Aug. 4.
Signs Of A Maturing Market
Another significant difference between this rally and 2017 has to do with the overall market composition and where value is located. A majority of the value of the current market is consolidated in Bitcoin and Ether (ETH) as institutional investors have thus far chosen the most established chains to gain exposure to the cryptocurrency sector.
Andy Yee, a Public Policy Director for Visa in Greater China, pointed to this development in a Tweet response to Pantera’s report:
“This rally is different. Massive shift from high-speculative, non-functioning tokens in 2017 to #Bitcoin and #Ethereum today, according to PanteraCapital.”
As shown in the chart above, Bitcoin and Ether have 86% of the value. The other 5,000 chains have 14%. While BTC was peaking late in 2017, the two top coins had a total of 52% of the value, indicating that BTC and ETH have consolidated their market share over the past three years.
Possible reasons for this shift in funds include institutional money focusing on Bitcoin as an entry point into the cryptocurrency market due to its network security and vast mining infrastructure, and the burgeoning decentralized finance ecosystem which is predominantly built on the Ethereum network.
As the DeFi ecosystem continues to grow it will also attract institutional attention, further boosting the price of Ether as it is required to interact with all smart contracts and DeFi platforms on the Ethereum network.
Data from defipulse shows that the total value locked in DeFi now stands at $29.98 billion, near its all-time high of $23.116 billion.
As the TVL increases, so does the value of the top ecosystem coins including AAVE and Synthetix (SNX). Trading volume on the top decentralized exchanges, such as Uniswap and SushiSwap, continues to grow with data from Dune Analytics showing that the combined weekly DEX volume recently surpassed $13 billion.
Institutional Inflow To Bitcoin May Trigger A New Altcoin Season
While Bitcoin and Ether currently hold 86% of the cryptocurrency market value, past market cycles would indicate the possible flow of funds out of the top cryptocurrencies and into promising new projects. This dynamic has led analysts like Raoul Pal to suggest that after Bitcoin and Ether’s stellar rally, the “next stop will be higher risk alts.”
Media have also reported that Goldman Sachs is rumored to be preparing to offer custody services for cryptocurrencies could set the stage for the next hype cycle for Bitcoin. A sustained inflow of money from the institutional class could be the catalyst that lifts the price of Bitcoin and keeps it in line with the projections of the stock-to-flow model.
Bitcoin Breakout ‘Imminent’ Says Hedge Fund As Analyst Targets $48K Monthly Close
Both Bitcoin’s technicals and analysis of on-chain indicators are “wildly bullish,” says Vailshire Capital Management, with BTC/USD reaching three-day highs.
A fresh Bitcoin (BTC) breakout is “imminent” and most likely to the upside, hedge fund Vailshire Capital Management says.
In a tweet on Jan. 19, Jeff Ross, the firm’s founder and CEO, described the outlook for BTC performance as “wildly bullish.”
Vailshire Capital ‘steadfastly long’ BTC
Using a combination of on-chain metrics and macro insight, Ross highlighted an upcoming end to the ranging and conolidation seen in the Bitcoin price this week.
“Update on #Bitcoin technicals… Breakout imminent. Direction still undecided. Macroview: Wildly bullish. On-chain analysis: Wildly bullish,” he wrote.
“Upside move most likely. Short-term dips will be bought with strength. Vailshire Partners LP remains steadfastly long.”
His comments come as Bitcoin sentiment appears to return to “business as usual” after the holiday break, with asset management giant Grayscale making its biggest one-day BTC buy ever — around $700 million as of Tuesday.
As Cointelegraph reported, both network difficulty and hash rate have hit new all-time highs, and expectations are mounting that price will rise to follow suit. Ether (ETH), the largest cryptocurrency other than Bitcoin, beat its record highs from 2018 on the day.
PlanB: All Eyes On Monthly Close
Vailshire meanwhile is not alone in its optimism over Bitcoin’s prospects this week. In the latest update to his stock-to-flow Bitcoin price model, quant analyst PlanB eyed the possibility of BTC/USD soon passing the “point of no return.”
This, he explains, would occur should January’s monthly close be substantially higher than the current spot rate — around $48,000, for example.
In so doing, Bitcoin would cement its status within stock-to-flow’s theories, including its transition to an asset with a market cap of up to $29 trillion, as dictated by PlanB’s stock-to-flow cross-asset model (S2FX).
“A larger monthly jump to #bitcoin $48K would create a nice gap between monthly dots. These gaps usually mark the point of no return (red arrows), i.c. the phase transition to #phase5,” he commented while uploading the chart to Twitter.
Not everyone was convinced. In an update on Tuesday, Cointelegraph Markets analyst filbfilb warned that the next few days would be critical if Bitcoin is to avoid bearish pressure.
The reason, he said, came from repeated warning signals delivered by his Predator trading tool.
“Predator printed its second yellow candle in the Bitcoin run-up,” he explained.
“Last one it could be ignored as the following candle was green. Three days to resolve it or it may mean a more lengthy chopsolidation/retrace IMO.”
Crypto Hedge Funds Underperformed (Average ROI 166%) Bitcoin (300%) During Rally Last Year
Actively managed cryptocurrency hedge-funds underperformed Bitcoin during the largest digital asset’s bull run last year, according to Crypto Fund Research.
The funds’ average rate of return was 166%, compared with a more than 300% increase in Bitcoin. During 2017’s surge, gains were about 1,100% as the dominant token burst into the mainstream consciousness with a 1,375% increase, according to the researcher. The data tracker didn’t release the names of the top performing funds.
While the funds as a whole significantly underperformed, a few breakout managers that made long bets and invested in decentralized-finance projects exceeded the average. At least one fund posted a more than 700% gain, according to Crypto Fund Research’s preliminary data. At least 10 funds registered more than 300% growth.
“The top-performing funds were funds that were long only,” said Josh Gnaizda, founder of Crypto Fund Research. “Some of them might even have levered exposure. It may also be that they have exposure to cryptos besides Bitcoin that have done well as well. Some of the DeFi products have done very well that year.”
DeFi stands for decentralized-finance applications, whose use exploded last year to allow for lending, trading and other functions without the use of intermediaries like banks. Many of them issued their own tokens, which appreciated significantly.
Crypto Fund Research said it can’t share individual funds’ rates of returns for the full year because of regulatory reasons. At the end of 2020, there were about 820 crypto funds, down slightly from the year before, the firm said.
Daniel Loeb’s $17B Hedge Fund Is Keeping Crypto With Coinbase – And Maybe Even Staking It
Third Point is the latest institutional stalwart to be revealed as a client of Coinbase Custody.
Billionaire investor Daniel Loeb’s “deep dive into crypto” last month led his $17.6 billion hedge fund to a familiar place: a custody deal with Coinbase.
Loeb’s Third Point LLC now holds cryptocurrency from five of its funds with Coinbase, according to regulatory documents obtained by CoinDesk. Some tout billions of dollars in underlying assets, but it is not clear how much of that is in crypto, which assets, or for how long they’ve invested.
With less than a week to go before Coinbase’s Nasdaq debut, the custody tie-up underscores how Brian Armstrong’s nine-year-old firm has transformed itself from a bitcoin-only digital wallet into a massive vault for Wall Street’s crypto bets.Coinbase revealed it held $122 billion in institutional assets during this week’s voluntary earnings call. It expects “meaningful growth” driven in part by custody revenue in the year ahead.
CoinDesk reported earlier this week that fellow hedge fund titan Paul Tudor Jones is also a Coinbase client, offering a glimpse at the deep-pocketed investors behind the exchange’s institutional assets under management.
Third Point did not respond to CoinDesk by press time.‘Deep dive’
The hedge fund’s true exposure to crypto assets remains more opaque. In a brochure accompanying the March 31 filings, Third Point said it can invest directly in cryptos or indirectly through derivatives contracts.
Notably, it is open to staking and lending any cryptos as well, the documents say.
“This is the first big traditional hedge fund that I know of that is doing staking,” said Tim Ogilvie, who runs a company called Staked that provides staking services to institutional investors, after reviewing the documents.
“On the one hand I’m surprised. On the other hand I’m not surprised,” he added. “If you want to hold a crypto asset that is proof-of-stake I think you have a fiduciary responsibility to stake.”
Proof-of-stake blockchains like Tezos, Cosmos, Solana and others reward token holders with payouts akin to interest for securing the network with their contributed holdings.
Institutional investors are slowly waking up to staking, Ogilvie said. With staking there are two gains generators: the token price and the staking payout. It’s a guaranteed reward on top of a speculative bet. Ogilvie said there are $4.5 billion in crypto assets on Staked.
Third Point Invests
Loeb has never publicly disclosed his crypto holdings. But he began to toy – at least publicly – with the asset class in an early-March tweet.
Third Point’s own foray into crypto likely started well before. In mid-March the asset manager revealed it is backing crypto exchange eToro, which, like Coinbase, is gearing up for a Nasdaq debut.
Chinese Hedge Fund Jumps 258% After Ditching Ray Dalio’s Playbook
Shanghai hedge fund manager Li Bei says she learned quickly that the low-volatility approach to investing behind the rise of Bridgewater Associates was doomed in China for a startup like hers.
Steady returns did little to draw investors used to short-term rewards, so she put in her own money, cranked up leverage and produced an industry-leading 258% gain last year.
Li is a pioneer in macro hedge fund management in China, where homegrown firms are taking on foreign giants that are struggling to adapt in an industry where even low-fee mutual funds generate sizable returns. While her Shanghai Banxia Investment Management Center only manages about 500 million yuan ($76 million), she says firms like hers are best placed to assess how China is driving the global economy.
“We truly feel that Chinese funds have an obvious advantage judging corporate profits and commodity prices,” Li, 37, said in a phone interview from Shanghai. “For us, these are good times to make money.”
Chinese macro hedge funds made an average 41% return in 2020, four times the global level, according to data from Shenzhen PaiPaiWang Investment & Management Co. and Eurekahedge. The more than triple gain of Li’s Banxia Stable Fund put her firm at the top of rankings for such funds in China.
The stellar year promises to save Li from wounds inflicted by an exodus of investors in 2019 when her 9% return — still beating an 8.9% global average of peers, according to Eurekahedge — was dwarfed by local mutual funds during a bull market. The setback forced her to rethink her initial strategy of emulating Ray Dalio’s Bridgewater, an approach that she says included diversifying to limit volatility and providing free research to attract institutional clients.
“The Bridgewater route doesn’t work in China,” Li said. Offering two complimentary research reports a month didn’t help bring new money, and big institutions also balked at her fund’s small size.
When clients were pulling cash from Banxia Stable, Li put in some of her own, and added leverage of between 250% and 300%.
The product, managing less than 200 million yuan, replicates asset allocations in her larger Banxia Macro Fund but increases exposure through margin-financed trades in instruments such as stock index and commodities futures.
Last year’s success didn’t come easily for Li. After managing money at Bocom Schroder Fund Management early in her career, she won multiple industry awards for her 25% annualized returns running China’s first macro hedge fund at Honghu Investment Management Co. Yet losses in 2016 caused differences with her then-husband Liang Wentao, the firm’s founder.
After they parted ways, the mother of two set up Banxia at the end of 2017 and started building client relations from scratch.
“She is a very unique China macro manager with the ability to do focused and very deep macro research in specific areas, such as steel,” said William Ma, who was until recently chief investment officer of wealth manager Noah Holdings, which invested in Banxia in January 2018.
The level of leverage in the revamped Banxia Stable is closer to what legendary investor George Soros outlined in his autobiography, Li said. If the shift sounds bold and simple, making the right moves during last year’s turbulence to achieve a 63% gain in the underlying strategy required sharp judgment.
In January 2020, Li was among the earliest to turn short on stocks and commodities, taking note of not only emerging reports on the new coronavirus but also signs of a weakening economy. “Super-cheap” put options allowed her to add leverage that helped bring a 61% jump in the leveraged Banxia Stable in the first quarter as markets tumbled, she said.
Li’s use of options to construct contrarian macro trades means “her return profile is negatively correlated” to global and local peers, said Ma, who has followed her performance since she worked at Honghu. “She is really one of the best macro hedge fund managers I have ever met,” he said.
Along with almost 9,000 local players, Li is competing with more than 30 global firms that are making inroads into China’s 4.5 trillion yuan hedge fund market. Dalio has said he saw the need to invest “a significant portion” of his portfolio in Chinese assets, and Bridgewater raised 900 million yuan in its second China private fund in September, doubling assets.
Bridgewater’s All Weather China strategy has posted annualized returns of 22% through July since its 2018 inception. That’s less than Banxia Stable’s 85% in the same period, Li said, while noting the strategies aren’t directly comparable.
In a reminder of risks macro hedge funds face when they bet in the wrong direction, Bridgewater’s flagship Pure Alpha II fell 12.6% last year.
More than other strategies, the performance of macro funds “depends a lot on the manager’s own judgment,” said Li Minghong, head of fund-of-funds investments at Panyao Capital in Shanghai.
Banxia Stable fell 13% in the first three months of this year, in part because of an increase in steel prices. Its short positions in ferrous metals were hurt by China’s unexpected move to lower crude steel output and cut capacity, according to its quarterly investor letter. The fund broke even on bonds, and made a small profit on stocks even as the Shanghai Shenzhen CSI 300 Index declined 3%.
Banxia wasn’t alone. More than 40% of Chinese hedge funds made a loss in the first quarter, although macro funds managed an average 1% gain, according to PaiPaiWang.
Li and her peers face a challenge attracting investors in a nation where macro funds account for just 2% of the 65,129 local private securities funds tracked by PaiPaiWang. She said she’s now meeting more potential customers following last year’s performance, but fund raising remains tough, in part because of Banxia’s short track record.
She hasn’t felt any impact from the collapse of U.S. family office Archegos Capital Management, saying her leverage is much lower and portfolio more diversified.
The difficulties aren’t shaking her confidence in outperforming the likes of Bridgewater.
“They should just hire people like me,” she said. “But I won’t work for them.”
Brevan Howard’s Hedge Fund To Start Buying Cryptocurrencies
Brevan Howard Asset Management is preparing to start investing in digital assets, becoming the latest money manager seeking to exploit the cryptocurrency boom.
The firm led by Aron Landy will begin by investing up to 1.5% of its $5.6 billion main hedge fund in digital assets, according to a person with knowledge of the matter. The initial allocation will be overseen by Johnny Steindorff and Tucker Waterman, co-founders of crypto investment firm Distributed Global, the person said, asking not to be identified because the information is private.
A spokesman for Jersey-based Brevan Howard declined to comment.
The move is the latest signal that cryptocurrencies are going mainstream as Brevan Howard joins the likes of billionaire hedge fund managers Paul Tudor Jones and Marc Lasry in betting on digital assets. Only on Wednesday, crypto exchange Coinbase Global Inc. went public and hit a valuation above $112 billion.
Brevan Howard’s fund will bet on the rising values of digital assets, and will focus on a wide range beyond just Bitcoin, the person said.
Brevan Howard is no stranger to digital assets. Co-founder Alan Howard invests his personal money into cryptocurrencies and the firm recently acquired a 25% stake in One River Asset Management, a $2.5 billion firm whose cryptocurrency funds are backed by Howard.
The billionaire has been an investor in Distributed Global since early 2018, the person said. That firm also runs a crypto venture capital fund in partnership with Singapore’s Temasek Holdings Pte. All trading will take place through Elwood Asset Management, an affiliate platform started by Howard four years ago, the person said.
Bitcoin has more than doubled this year, boosting the market for cryptocurrencies past $2 trillion, while the entry of big financial institutions into the space has been one of the biggest trends in the industry over the past few months. Tesla Inc. now accepts Bitcoin for its electric vehicles, and the company disclosed a $1.5 billion investment in the currency earlier this year.
Both Morgan Stanley and Goldman Sachs Group Inc. have also announced plans to offer clients access to crypto investments.
On its part, Brevan Howard had been developing its digital trading technologies and assessing the sector’s suitability for investors for the last few years, according to the person. It decided in the fourth quarter of last year that the industry had matured enough for it to deploy a small part of clients cash.
Brevan Howard, best known for its macro trading prowess, is in expansion mode following a record year of gains. Investors who abandoned the firm amid years of mediocre returns are coming back: Assets that collapsed by over 80% from their peak to about $6 billion two years ago have since rebounded to above $13 billion.
The firm’s main fund is run by a group of traders including Howard himself, Fash Golchin, Alfredo Saitta and Minal Bathwal. It gained 27.4% last year in its best annual return since 2003.
Brevan Howard Asset Management’s decision to start buying cryptocurrencies for its main fund is yet more proof that portfolio managers are finding it hard to ignore an asset class that’s soared in value this year. It’s also evidence that hedge funds, after several years of industry contraction, are starting to get their mojo back.
Brevan Howard will invest as much as 1.5% of its key $5.6 billion portfolio in digital assets, buying a range of securities beyond just Bitcoin, my Bloomberg News colleague Nishant Kumar reported.
It’s a bold move. Unlike the rest of the foreign exchange universe, cryptocurrencies are literally untethered — no pun intended — from the real world. A decision to buy or sell dollars or euros is typically backed up by an analysis of relative economic performance or the prospects for inflation or likely policy moves by the respective central banks.
Crypto doesn’t lend itself to any such scrutiny. Its value is solely determined by the willingness of speculators to either increase their holdings or cash out. And the widely reported figure that 95% of the Bitcoins in the world are controlled by just 2% of the accounts in existence makes the digital asset very vulnerable to the fickleness of so-called whales.
But for a hedge fund, massive volatility should be a feature, not a flaw. And funds that pursue global macro as an investment style are both the most likely to adopt crypto as an asset class and the most in need of a boost to their returns.
Brevan Howard’s move to embrace the price swings inherent in digital assets comes at a time when the hedge fund industry is in its best shape for years. Last year saw 770 hedge funds close, compared with 539 openings, according to data compiled by research firm HFR. But in the fourth quarter alone, 175 starts outpaced the 151 funds that shut shop, a second consecutive quarter of industry expansion after eight periods of contraction.
And customers are returning. Brevan Howard’s assets have more than doubled in the past two years to more than $13 billion. Man Group Plc, the world’s largest publicly traded hedge fund, saw its assets swell to a record $127 billion in the first three months of this year, up from $123.6 billion at the end of 2020. It anticipates further inflows in the coming quarters.
Man Group already trades Bitcoin, including via futures contracts, Chief Executive Officer Luke Ellis said last month. “One has to temper the excitement about cryptocurrencies and how much you can do in those markets until you can see whether there’s real liquidity,” he told my Bloomberg Television colleague Erik Schatzker.
But the more that mainstream institutions get involved in digital currencies, the more liquid they’ll become. Coinbase Global Inc., an exchange for digital assets, has a market capitalization of about $64 billion after listing on the stock market this week, big enough to make it a must-own equity for many tracker funds and thereby broadening investors’ participation in crypto, as my Bloomberg Opinion colleague Nir Kaissar pointed out.
If the Securities Exchange Commission finally relents and approves one of the eight applications from firms wanting to launch a Bitcoin exchange-traded fund in the U.S., crypto’s dubious charms will become available to even more investors willing to stomach the price gyrations of a virtual asset. Just hope that the whales don’t decide to bail.
Hedge Fund Manager Alan Howard Invests In Two Crypto Startups
A long-running backer of the crypto industry, billionaire hedge fund manager Alan Howard recently invested in two digital asset startups.
Billionaire hedge fund manager Alan Howard continues backing the cryptocurrency industry with fresh investment in two digital asset startups.
The co-founder of major asset manager Brevan Howard led a $25 million extension fund raise for London-based crypto services firm Copper.co. The company announced Friday that the new investment follows a $50 million Series B funding round led by companies like Dawn Capital and Target Global.
The additional funding will be directed to further strengthen Copper’s expertise in enabling traditional financial firms to benefit from blockchain technology and cryptocurrencies. The firm stressed that the additional funding shows the growing interest in crypto from the traditional finance sector.
Hot on the heels of our Series B $50m raise, Alan Howard of Brevan Howard has invested $25m in Copper.— Copper (@CopperHQ) June 11, 2021
This additional funding signals the growing interest and endorsement from the traditional finance sector in cryptoassets.
Full details: https://t.co/HCdp0uJ1wm pic.twitter.com/JzY4zyU17d
Hot on the heels of our Series B $50m raise, Alan Howard of Brevan Howard has invested $25m in Copper.
This additional funding signals the growing interest and endorsement from the traditional finance sector in cryptoassets.
The Copper investment follows another Howard-backed $12 million fundraise for Asian crypto investment platform Kikitrade announced Thursday. The startup intends to channel the new capital to expand its business and compliance across Australia, Hong Kong, Taiwan and Southeast Asia.
Howard has previously invested in major crypto firms like European digital asset manager CoinShares, blockchain and software development company Block.one, and institutional crypto trading platform Elwood.
Howard also owns a 25% stake with One River Digital Asset Management, a United States-based hedge fund that purchased $600 million worth of Bitcoin (BTC) and Ether (ETH) last year. Earlier this year, Howard led a $25 million funding round for Komainu, a digital asset custody services provider created by global bank Nomura in partnership with crypto wallet firm Ledger and CoinShares.
Within Five Years, US Hedge Funds Expect To Hold 10.6% Of Assets In Crypto
North American hedge funds are at the vanguard of crypto-curious investors, although EU and U.K. funds are not far behind, expecting to hold 6.8% of their assets in crypto within five years.
A new survey of 100 chief financial officers at hedge funds worldwide has indicated that the sector is planning a significant increase in its exposure to crypto assets in the near term.
The survey, conducted by Intertrust, suggests that if the respondents’ forecasts were broadly mirrored across the sector, assets in crypto held by global hedge funds could hit $312 billion. United States-based funds were most bullish about the new asset class, expecting to raise their portfolio exposure to crypto to 10.6% on average within five years.
Their European Union- and United Kingdom-based counterparts gave a slightly more modest figure, although still significant: 6.8% on average. Intertrust’s sample included chief financial officers of funds that each manage an average of $7.2 billion in assets. The CFOs themselves personally expected to have a minimum of 1% of their portfolios in crypto.
High-profile hedge fund managers such as Paul Tudor Jones have been vocal advocates of Bitcoin (BTC) amid concerns about inflationary tendencies in the economy. SkyBridge Capital CEO Anthony Scaramucci takes a similar view of Bitcoin’s potential as a store of value, considering it superior to gold.
Another big name in the sector that is backing cryptocurrency is Alan Howard, co-founder of major asset manager Brevan Howard. Just this week, Howard invested in two digital asset startups following his earlier investment in a digital asset custody services provider created by Nomura in partnership with Ledger and CoinShares. He also owns a 25% stake with One River Digital Asset Management. There have also been reports of Brevan Howard’s plans to directly invest in crypto.
Aside from traditional hedge funds’ increasing confidence in the asset class, there are also a number of attempts to launch new crypto funds in the hope of replicating the successes of Bitwise and Grayscale.
Hedge Fund Giants Druckenmiller, Loeb Back $70M Funding For Crypto Asset Manager Bitwise
The Series B round values the firm at $500 million.
Bitwise Asset Management – a crypto investment firm with $1.2 billion in assets under management that is trying make inroads in the country’s $20 trillion financial advisory industry – has raised $70 million at a $500 million valuation, CoinDesk has learned.
The Series B round of funding was led by tech investor Elad Gil and crypto venture fund Electric Capital. Meanwhile, a who’s-who from the financial world also participated, including Daniel Loeb’s Third Point LLC, hedge funder Stanley Druckenmiller, financier Henry Kravis, Bridgewater Associates CEO David McCormick and Nadeem Meghji, a senior managing director at Blackstone.
Bitwise – a five-year-old firm that CEO Hunter Horsley said is now profitable – plans to further strengthen its ties with the financial advisers he says are critical to the widespread adoption of crypto. About 300,000 financial advisers oversee much of the country’s private wealth, he noted.
In an interview, Horsley predicted most Americans “will own crypto in one way or another over the next decade” and said reaching that benchmark will require making crypto as seamless an investment as the stocks, bonds and exchange-traded funds (ETFs) for money managers.
“They’re not trying to trade events or outsmart the market, they’re just going to want crypto to fit in with the rest of their investment lives,” he said.
Bitwise Goes Big
Bitwise has already established ties with 200 financial advisory firms, more than double the count from January. It plans to find more partners by bolstering its client education resources and relationship management team.
The firm offers BTC and ETH funds, thematic index funds, including a decentralized finance (DeFi) index fund, and adjacent ETF products, like the Crypto Industry Innovators ETF (BITQ), which invests in companies such as MicroStrategy and Riot that have exposure to crypto.
BITQ alone has seen $45 million in inflows since launching on the New York Stock Exchange in early May.
Horsley said the new funding will help the firm build more products faster. “You’ll see more products from us this year,” he explained.
All that would appear to make Bitwise a natural contender for a bitcoin ETF. Indeed, the company has tried to launch an ETF before, but nuked its own bid in early 2020 after months of stonewalling by the U.S. Securities and Exchange Commission (SEC), which has yet to approve a bitcoin ETF.
For now, Bitwise remains on the sidelines as at least nine other firms try their luck in getting SEC approval for a bitcoin ETF before Gary Gensler, the new SEC chairman.
“The ETF is a great wrapper. But we’ve grown 20x year over year without a [bitcoin] ETF,” Horsley said.
“There are a variety of different pipes that we can open up to help investors pull crypto into the rest of their lives,” he added.
Others who contributed the funding round include Coinbase Ventures and ParaFi Capital as well as tech and finance executives from Facebook, Google X, Spotify, Visa and Instacart.
Gil and Electric Capital, the two lead investors, joined Bitwise when institutional crypto adoption was more thought experiment than reality. That dynamic has radically changed after more than a year of major financial firms jumping into the industry.
Electric Capital co-founder Avichal Garg said Bitwise has walked a careful line to build a backer list of “just legendary people.”
“You really need to understand crypto. But you also really have to understand traditional finance and Wall Street and asset management,” Garg said. “So I think the investors that they brought in are sort of reflective of that.”
He said the equity investors are betting Bitwise is the “leading asset management company” in a crypto market that he thinks could still grow 10 to 100 times larger.
“Once you start talking capital flows into assets and the $20 trillion that’s sitting with asset managers, it’s not at all crazy” to conclude that Bitwise could be “a primary conduit” of inflows of hundrds of billions of dollars from private money managers, Garg said.
‘For The Long Haul’
Horsley said the new round of funding came together in the wake of bitcoin’s April highs. “If $60,000 was the top, this round is happening after the top,” he said.
In 2017, Bitwise raised $4 million in a seed round of funding that came as the bitcoin market was nearing its historic $20,000 peak, followed by a 65% sell-off in less than a month.
Bitwise unveiled its seed funding just weeks before the market top.
Then, and now, Horsley said Bitwise’s backers are “in it for the long haul.”
“They think that this is an asset class that’s here to stay and they think that Bitwise has the potential to be an enduring institution in the space,” he said.
98% of CFOs Say Their Hedge Fund Will Have Invested In Bitcoin By 2026: Study
The survey results coincide with U.S. inflation climbing to its highest levels since 1992.
Traditional hedge funds are willing to increase their exposure in Bitcoin and other cryptocurrency markets over the next five years, a new survey has found.
Intertrust Global, an international trust and corporate management company, polled the chief financial officers of 100 hedge funds globally about their intention to purchase crypto assets. About 98% of them responded that they expect their hedge funds to have invested 7.2% of their assets in cryptocurrencies by 2026.
The survey found that a 7.2% investment into the cryptocurrency sector would equal about $312 billion if replicated across the sector. Meanwhile, about 17% of the polled CFOs admitted that their hedge fund could have 10% of their assets allocated to cryptocurrencies such as Bitcoin (BTC).
The results appeared as Bitcoin corrected by more than 50% after rallying from $3,858 in March 2020 to almost $65,000 in April 2021, leading to speculations that it would crash further due to overvaluation.
Nevertheless, the flagship cryptocurrency held through technical supports around $30,000 and, earlier this week, rallied back above $40,000.
The Bitcoin Price Boom Recap
A majority of Bitcoin’s gains came on the back of anti-inflation narratives that became popular in the aftermath of the coronavirus pandemic-led March 2020’s global market crash.
Global central banks responded with unprecedented monetary support, with the United States Federal Reserve launching a near-zero lending rate policy alongside a $120-billion monthly asset purchase program.
The central bank’s decision crashed yields on U.S. government bonds to record lows. Meanwhile, liquidity injections into the economy, accelerated further by the White House-led trillions of dollars worth of stimulus aid, also pushed the dollar’s value lower against its top rival fiat currencies.
Many investors turned to riskier safe-haven assets that benefited U.S. stocks, gold, silver and Bitcoin. Out of all, Bitcoin delivered the best bull runs as the Fed’s money-printing policies continued.
Many mainstream fund managers appeared at the forefront of Bitcoin’s 2020 price boom. For example, billionaire investor Paul Tudor Jones of hedge fund Tudor Investment Corporation said last year that he holds small percentages of Bitcoin. Later, another legendary investor, Stan Druckenmiller, also revealed that he is invested in the benchmark cryptocurrency to offset inflation risk.
European hedge fund management company Brevan Howard, U.S. fund firms SkyBridge Capital, Fidelity Investments and ARK Invest have also turned into some of the biggest Bitcoin backers from the traditional finance sector.
Intertrust’s survey also showed that all the surveyed executives in Europe, North America and the United Kingdom have at least 1% exposure in Bitcoin and similar cryptocurrencies. It further noted that North American hedge funds would likely have an average exposure of 10.6% in cryptocurrencies compared to those in the U.K. and Europe that anticipated 6.8% exposure.
The Intertrust survey also came as inflation in the U.S. reached 5% in May for the first time since 1992, reported the U.S. Labor Department in its monthly Consumer Price Index report.
Many analysts, including Randall Kroszner, a professor at the University of Chicago business school and a former Fed governor, noted that higher inflation would lead the Fed to withdraw its expansionary policies to some extent.
The speculation over “tapering” also rose as the Federal Open Market Committee (FOMC) began its two-day meeting on Tuesday.
But so far, a majority of FOMC officials, including Fed Chair Jerome Powell, have treated the recent CPI spike as “transitory.” ANZ economist Tom Kenny noted that the U.S. central bank would, therefore, keep its policies unchanged at least until it sees improvements in the labor data.
Meanwhile, Tudor Jones said in his recent interview with CNBC that he had increased his Bitcoin holdings from 1%–2% in 2020 to 5% after noticing the Fed’s disapproval of recent inflation spikes. He noted:
“I like Bitcoin as a portfolio diversifier — say 5% in gold, 5% in Bitcoin, 5% in cash, 5% in commodities at the point in time. I don’t know what I will do with the other 80%. I want to wait and see what the Fed will do.”
Hedge Fund Giant Marshall Wace To Reportedly Dive Into Crypto
Marshall Wace is reportedly still discussing the size of its new digital currency-related portfolio with potential investors.
Marshall Wace, a London-based hedge fund giant managing about $55 billion in assets, is reportedly planning a major move into cryptocurrency and blockchain investment.
The hedge fund firm is preparing to launch a dedicated portfolio, targeting investments in the digital asset industry, the Financial Times reported on Tuesday.
Citing anonymous people familiar with the matter, the report notes that the new initiative will focus on investing in privatelyowned digital finance companies working in areas like blockchain technology and payments systems for digital currencies and stablecoins.
It is believed that Marshall Wace’s new digital finance portfolio will be headed by Amit Rajpal, chief executive of Marshall Wace Asia and co-founder of Indian fintech firm Niyogin.
According to the report, the portfolio will adopt a similar approach to a newly launched healthcare fund, first targeting investments in firms before flotation, then holding on to them after they list. People familiar with the matter reportedly said that the portfolio will focus on late-stage venture capital investments and the infrastructure around stablecoins.
The hedge fund firm is reportedly still discussing the size of the new portfolio with potential investors. The company did not immediately confirm nor deny the news to Cointelegraph.
In May, Marshall Wace participated in a $440 million fundraising round for Circle, a major United States-based fintech firm behind USD Coin (USDC), which is the second largest stablecoin by market value after Tether (UDST).
Hedge Funds See The Crypto Market Decline As An Investment Opportunity
From rebalancing cash positions to announcing new investment products, hedge funds seem undeterred by the current crypto market decline.
Crypto market capitalization is down more than 40% since its $2.5-trillion high back in early May, but institutional investors continue to pile into the market. Despite Bitcoin (BTC) losing over half of its United States dollar value and altcoins tanking almost 70% on average, big-money players like hedge funds are still taking up digital currency investment positions.
From direct exposure to crypto to backing firms developing products and services in the digital asset space, institutional investors are building a more significant presence in the cryptocurrency and blockchain space. Back in June, a survey of 100 chief financial officers at hedge funds across the world indicated an expected increase in crypto exposure for hedge funds in the next five years.
As regulated entities continue to explore digital currency investment options, crypto regulations also seem to be taking shape in many jurisdictions. Meanwhile, in the U.S., regulators such as the Securities and Exchange Commission are coming under significant pressure to enact a stricter legal framework for cryptocurrencies.
Crypto Investment Appeal Still Strong
Earlier in July, Cointelegraph reported that London-based hedge fund giant Marshall Wace was set to create an investment portfolio focused on digital assets. According to the report, the $55-billion hedge fund was looking toward late-stage funding for digital finance companies and blockchain outfits working on use cases such as payment systems for digital currencies and stablecoins.
Amit Rajpal, CEO of Marshall Wace Asia Limited, outlined the company’s digital asset investment thesis, stating that the focus is on projects working toward redefining 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 its crypto-focused investment portfolio emerged, Marshall Wace had made some forays into the digital asset space. Back in May, the hedge fund participated in USD Coin (USDC) stablecoin issuer Circle’s $440-million fundraising round.
Marshall Wace is only the latest in a growing list of hedge funds and other institutional investors exploring crypto investment options. In April, United Kingdom-based asset management outfit Brevan Howard floated an $84-million crypto investment fund.
Speaking to Cointelegraph China earlier in July, Cornell University professor and Avalanche creator Emin Gün Sirer stated that the current market downturn had done little to dampen enthusiasm for crypto exposure among institutional investors. According to Sirer, the legitimacy of crypto as an asset class is “beyond question,” stating:
“I have been getting contacts from retirement funds, not hedge funds, but retirement funds. Very different piece, far more slower-moving but with maybe 10 times more dollars under their control and they are slowly coming into 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 dampened, but these downturns have been historically opportune moments for long-term entries,” the BitBull Capital CEO added.
A spokesperson for Nickel Digital Asset Management, a $200-million crypto hedge fund, also provided some insight into the emerging strategies among institutional players amid the current range-bound trading for cryptocurrencies.
In a conversation with Cointelegraph, the Nickel Digital representative said, “We are seeing active and continuous engagement from the entire institutional community, including (but not limited to) pensions, foundations, endowments and funds of hedge funds,” adding:
“Recent volatility has proved to be an opportunity for certain trading strategies (like market-neutral arbitrage) while being a headwind for others (beta exposures to underlying crypto assets). In fact, it created an immediate demand for lower-volatility defensive funds. The investment objective, sizing and risk tolerance are the critical factors in assessing any investment opportunity, especially in crypto.”
Indeed, Nickel Digital recently rebalanced its cash position as a result of the current market decline in a move the company described as an exercise in “financial discipline.” According to the fund’s CEO, Anatoly Crachilov, Nickel Digital is keeping its investment powder dry for the future return of parabolic price gains in the crypto market.
Big-Money Players Welcome More Crypto Regulation
As more institutional players make crypto forays, stakeholders say asset managers are not worried about regulatory risks. Indeed, the bulk of attention from financial regulators appears to be focused on protection for retail investors.
Meanwhile, banks and other regulated entities seem to be getting clearer mandates from regulatory bodies to interact with digital assets. Commenting on the advantages created by enacting clear-cut regulations for cryptocurrencies, the Nickel Digital spokesperson told Cointelegraph:
“We embrace regulation because we feel that regulation brings clarity, and clarity brings broader market participation. Crypto has had years of regulation in the U.S., and the recent changes in Germany could unlock billions of dollars into the crypto space.”
Earlier in July, authorities in Germany passed a landmark ruling allowing institutional funds to allocate up to 20% of their assets under management to cryptocurrencies. This move came despite warnings by Germany’s Federal Financial Supervisory Authority about the dangers of speculative investments.
The new law in Germany could potentially see up to $415 billion worth of investments flowing into the crypto space. Germany’s Fund Allocation Act is also on top of previous rulings that put security tokens on equal footing as other regulated investment vehicles in the country.
Dismissing concerns regarding regulatory scrutiny having any negative impact on institutional crypto involvement, DiPasquale told Cointelegraph, “Regulatory fears are always present in the crypto space, but there is a drive towards compliance, which is likely to result in a more lenient attitude in the future.”
Bulls Will Return In The Fall
If the current crypto downturn offers a premium investment opportunity for hedge funds and other institutional investors, such a strategy most likely relies on the expectation of a market bounce in the future. As previously reported by Cointelegraph, Sirer has predicted that sideways accumulation will dominate the crypto price action during the summer months.
Indeed, since dipping by over 50%, Bitcoin has been range-bound between the $32,000 and the $36,000 price marks. Bitcoin’s lack of a significant breakout either way has almost meant repeating mini-dips and pumps across the crypto market.
However, Sirer said he expects a return to the upward parabolic price trajectory in Q4. According to the Avalanche founder, the expected resurgence should begin in October or November.
“I am really excited about what’s to come because I know that there is so much interest in institutional, retail, as well as in this new technology that is poised to change the world. […] We are in the early days of a very big movement to restructure the entirety of the financial infrastructure.”
“Bear market is actually great for getting work done. The transformation of finance isn’t going to stop because we hit a relative price correction,” Sirer added to Cointelegraph China. The Cornell University professor also stated that serious stakeholders are utilizing the current period as a time for consolidation and growth.
Like Sirer and Marshall Wace’s Rajpal, there is a growing belief that the crypto and blockchain space is on its way to upending the global financial system, hence the emerging interest from institutional entities. Even on the retail side, regulated institutions, such as banks, are also becoming keen on offering cryptocurrency-related services.
Having seen millions of dollars flowing into the coffers of exchanges like Coinbase on a daily basis, firms like NYDIG say U.S. banks are keen to get in on the action and begin offering Bitcoin trading services to account holders. As such, the company has recently announced a raft of partnerships that will allow crypto trading right from customer bank accounts in America.
BitBull’s DiPasquale also touched on the possibility of a bull market return in 2021 but offered a date closer to the winter period, adding, “We could see a return in 2021, yes, but parabolic gains may not be seen until December or early next year.” DiPasquale, however, predicted that Bitcoin will end the year trading above the $50,000 price mark.
Hedge Funds Seek The Amazon of Cryptocurrencies
Finance billionaires are betting increased regulation will broaden participation on digital currency exchanges.
During a gold rush, invest in shovel makers, goes the adage. That’s precisely what hedge funds looking to get in on the excitement around cryptocurrencies are doing with a flurry of investments in platforms created to buy, sell and store virtual currencies.
At the same time, regulators around the world are asking more questions about how much protection any companies handling crypto assets should offer investors. Tighter rules look inevitable if the market for digital currencies is to become anything more than a sideshow in the world of finance.
The need for trustworthy exchanges is clear. So the mavericks of finance have been tossing a few percentage points of their assets into new things in the hope that one of them becomes cryptoland’s equivalent of the next Amazon.com Inc. or Alphabet Inc.
Crypto derivatives exchange FTX just raised $900 million from more than 60 investors including Paul Tudor Jones, Alan Howard and Izzy Englander. Howard, along with hedge fund titans Peter Thiel and Louis Bacon, is also invested in Block.One, the blockchain software company behind cryptocurrency exchange Bullish.
And Paul Marshall’s $55 billion fund Marshall Wace LLP is a backer of Circle, a digital payments firm that’s part of the consortium behind the USDC stablecoin.
Interest from mainstream finance continues to grow, although it’s far from clear whether fear of missing out is the main motivation rather than any genuine belief in the market’s future or efficacy. A survey of 1,100 institutional investors published last week by Fidelity Investments suggested 70% expect to buy or invest in digital assets in the future. Goldman Sachs Group Inc. says almost half of the family offices it deals with want to include digital currencies in their portfolios.
But the dangers and difficulties of committing client cash to the sector remain problematic. The quality of custodial services, which guarantee investors’ cash is held securely, was cited as an obstacle by more than three-quarters of investors in a global survey of funds overseeing a combined $275 billion by Nickel Digital Asset Management, a London-based firm that offers four crypto investment products.
U.K. regulators have already taken action against one of the biggest platforms. The Financial Conduct Authority last month banned Binance Markets Ltd., an affiliate of leading crypto bourse Binance, from offering products or even advertising, prompting several banks to block card payments to the parent company.
Binance Chief Executive Officer Zhao Changpeng told Singapore’s Straits Times last week that navigating the global regulatory landscape is his firm’s biggest challenge.
More developments may come this week. U.S. Senator Elizabeth Warren posed a series of questions to U.S. Securities and Exchange Commission Chair Gary Gensler earlier this month seeking the regulator’s view on how crypto exchanges should be overseen.
She pointed to the cross-border challenge the industry poses and asked whether international coordination is needed to protect investors, giving him until July 28 to respond. With the leveraged derivatives commonly used in crypto trades restricted to sophisticated investors in the U.S., the text of her letter makes clear the direction of travel she expects his agency to follow:
“As the cryptocurrency markets continue to grow and expand, the lack of regulation to provide basic investor protections is unsustainable. The SEC regulates national securities exchanges, and cryptocurrency exchanges that operate in a similar manner should be subject to similar regulatory standards.”