Why hedge funds are betting big on cryptocurrencies

Hedge funds, those major players in traditional finance, are now turning their attention to a market that was previously considered too volatile: cryptocurrencies. According to a recent report by the Alternative Investment Management Association and PwC, nearly 47% of hedge funds that typically trade in traditional markets now have digital assets. This number represents significant progress compared to previous years. If in 2023 29% of these funds will dive into cryptocurrencies, today almost half of them are taking advantage of digital currency opportunities. But what motivates this sudden madness?

Crypto: responding to the search for diversification

For hedge funds, diversification is key, and crypto offers new prospects. Indeed, the crypto market presents more volatile movements and potential returns that many investors today find unmatched.

With the introduction of more precise regulatory frameworks in the United States and Asia, the cryptocurrency market is now more accessible and less risky for these traditional financial institutions.

Hedge fund interest in crypto is also fueled by the emergence of new financial products such as exchange-traded funds (ETFs) based on Bitcoin and other digital currencies.

These products offer hedge funds a regulated way to gain access to digital assets while avoiding some of the complexities associated with outright cryptocurrency purchases. ETFs, for example, facilitate this process by allowing funds to track bitcoin’s price movements without having to directly manage the assets.

As Bloomberg reports, this transition is not trivial. For hedge funds, the shift to cryptocurrencies demonstrates their desire to explore alternative avenues that can yield significant profits but also hedge against the risks associated with traditional assets.

In a context where returns on bonds and other traditional securities are often low, cryptocurrencies represent an option for higher potential profits, despite their volatility.

Major trend for 2024: expansion towards digital assets

Crypto craze among hedge funds isn’t just a fad, study shows. Indeed, among hedge funds already invested in cryptocurrencies, 67% plan to maintain current investment levels in 2024, while others even plan to increase their holdings.

This growing enthusiasm suggests a possible reevaluation of cryptocurrencies by major financial players, who now see them as a potential pillar of their portfolios.

Why such a change of perspective? Some hedge funds expect mass adoption of cryptocurrencies around the world.

The idea that digital assets could one day compete with gold or other safe havens is becoming less and less utopian. In addition, the blockchain technology that underpins cryptocurrencies opens up endless possibilities in terms of traceability, transparency and security, and strengthens the confidence of institutional investors.

In addition, industry giants such as Fidelity and BlackRock are also interested in crypto derivatives, bringing further legitimacy to the market.

The participation of these big names encourages hedge funds to follow the trend and position themselves upstream to gain market share. As the market structure itself, hedge funds are even considering incorporating sophisticated trading strategies applying proven speculative techniques from stock markets to the crypto world. Meanwhile, HBO exposes Satoshi Nakamoto and shocks the crypto community.

Evans S.

Fascinated by Bitcoin since 2017, Evariste continued to research the topic. If his first interest was trading, now he is actively trying to understand all the developments focused on cryptocurrencies. As an editor, he strives to consistently deliver high-quality work that reflects the state of the industry as a whole.

DISCLAIMER OF LIABILITY

The comments and opinions expressed in this article are solely those of the author and should not be considered investment advice. Before making any investment decision, do your own research.