Crypto market cap has fallen more than 40% from its high of $ 2.5 trillion in early May, but institutional investors continue to rush into the market. Although Bitcoin (BTC) lost over half of its US dollar value and altcoins plummeted nearly 70% on average, big money players like hedge funds are still taking investment positions in digital currencies.
From engaging directly with crypto to helping companies developing digital asset products and services, institutional investors are building a more significant presence in the cryptocurrency and blockchain space. Back in June, a survey of 100 chief financial officers of hedge funds around the world showed an expected increase in crypto exposure for hedge funds over the next five years.
As regulated companies continue to examine investment options for digital currencies, crypto regulations also appear to be taking shape in many jurisdictions. Meanwhile, in the United States, regulators like the Securities and Exchange Commission are coming under significant pressure to enact a stricter legal framework for cryptocurrencies.
Crypto investment attractiveness still going strong
In early July, Cointelegraph reported that London-based hedge fund giant Marshall Wace will build a digital asset-focused investment portfolio. According to the report, the $ 55 billion hedge fund was looking for late-stage funding for digital finance and blockchain companies working on use cases like digital currency payment systems and stablecoins.
Amit Rajpal, CEO of Marshall Wace Asia Limited, outlined the company’s digital asset investment thesis and stated that the focus is on projects that aim to redefine financial services, particularly 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 surfaced, Marshall Wace had made several forays into the digital asset space. As early as May, the hedge fund participated in the $ 440 million fundraising round of USD Coin’s (USDC) stablecoin issuer Circle.
Marshall Wace is just the latest in a growing list of hedge funds and other institutional investors exploring crypto investment options. In April, British asset management firm Brevan Howard launched an $ 84 million crypto mutual fund.
Speak with Cointelegraph China In early July, Cornell University professor and Avalanche inventor Emin Gün Sirer stated that the current market downturn had done little to dampen the enthusiasm for crypto exposure among institutional investors. According to Sirer, the legitimacy of crypto as an asset class is “out of the question” and states:
“I got contacts from pension funds, not from hedge funds, but from pension funds. Completely different piece, much slower, but with maybe ten times more dollars under your control and you are slowly getting into the cryptocurrency. “
Joe DiPasquale, CEO of crypto hedge fund BitBull Capital, also agreed with Sirer’s comments, telling Cointelegraph, “Institutional investors are still interested and continue to build positions at key levels of support.”
“Of course the market hype has weakened, but these downturns were historically favorable moments for long-term entries,” added the CEO of BitBull Capital.
A spokesperson for Nickel Digital Asset Management, a $ 200 million crypto hedge fund, also provided insight into the emerging strategies of institutional players in current sectoral cryptocurrency trading. Speaking to Cointelegraph, the Nickel Digital representative said, “We see active and ongoing engagement from the entire institutional community, including (but not limited to) pensions, foundations, foundations and hedge funds of funds,” added:
“The recent volatility has proven to be an opportunity for certain trading strategies (such as market-neutral arbitrage) while it is a headwind for others (beta exposures in underlying crypto assets). In fact, it immediately created a demand for defensive funds with lower volatility. The investment objective, size and risk tolerance are the critical factors in evaluating any investment opportunity, especially in crypto. “
In fact, Nickel Digital recently rebalanced its liquidity position in response to the recent market decline in what 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 in order to generate parabolic price gains in the crypto market in the future.
Big money players welcome more crypto regulation
As more institutional actors go on crypto forays, stakeholders say asset managers are not concerned about regulatory risk. Indeed, it appears that the greatest concern of financial regulators is on protecting retail investors.
In the meantime, banks and other regulated companies appear to be getting clearer mandates from regulators to interact with digital assets. The Nickel Digital spokesperson commented to Cointelegraph on the benefits of setting clear rules for cryptocurrencies:
“We welcome regulation because we believe that regulation brings clarity and clarity brings broader market participation. Crypto has been regulated in the US for years, and the recent changes in Germany could free billions of dollars into the crypto space. “
At the beginning of July, the authorities in Germany issued a groundbreaking decision that allows institutional funds to invest up to 20% of their assets under management in cryptocurrencies. This happened despite warnings from the Federal Financial Supervisory Authority about the dangers of speculative investments.
The new law in Germany could potentially allow investments of up to 415 billion US dollars to flow into the crypto space. The German Fund Allocation Act also complements earlier decisions that put security tokens on an equal footing with other regulated investment vehicles in the country.
Concerns about government oversight that could have a negative impact on institutional crypto engagement were dismissed by DiPasquale to Cointelegraph: “Regulatory fears are always present in the crypto space, but there is a drive for compliance, which is likely to become more lenient in the future Attitude will lead. “
The cops return in the fall
If the current crypto downturn offers a prime investment opportunity for hedge funds and other institutional investors, such a strategy is most likely based on anticipation of a future market upturn. As previously reported by Cointelegraph, Sirer predicted that sideways accumulation will dominate crypto price movement in the summer months.
In fact, Bitcoin has been in a range between the USD 32,000 and USD 36,000 price mark since the drop of over 50%. The lack of a significant breakout in Bitcoin in either case has almost led to mini-dips and pumps repeating themselves in the crypto market.
However, Sirer said he expected a return to parabolic price action in the fourth quarter. The expected resurgence should begin in October or November, according to the Avalanche founder.
“I’m really excited to see what’s to come because I know there’s so much interest in institutional, retail and this new technology that is going to change the world. […] We are at the beginning of a very large movement to restructure the entire financial infrastructure. “
“The bear market is actually great for getting work done. The transformation of finance is not going to stop because we made a relative price adjustment, ”added Sirer Cointelegraph China. The Cornell University professor also stated that serious interest groups are using the current time as a time for consolidation and growth.
Connected: Avalanche founder Emin Gün Sirer “quite optimistic” about the prospects for the crypto market
Like Rajpal of Sirer and Marshall Wace, there is a growing belief that the crypto and blockchain space is on the way to turning the global financial system inside out, hence the growing interest of institutional units. On the retail side, too, regulated institutions like banks are increasingly interested in offering cryptocurrency-related services.
After millions of dollars poured into the coffers of exchanges like Coinbase every day, companies like NYDIG say U.S. banks are keen to get in on the action and begin offering bitcoin trading services to account holders. Because of this, the company recently announced a series of partnerships that will enable crypto trading directly from client bank accounts in America.
BitBull’s DiPasquale also raised the possibility of a bullish 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 until December or early next Year. ”However, DiPasquale predicted that Bitcoin will end the year trading above the $ 50,000 mark.