Crypto Market Decline has Hedge Funds Seeing an Investment Opportunity
In early May, crypto market capitalization was pegged at $2 trillion or more. Since then, the market cap has dropped more than 40 percent. In terms of U.S. dollars, Bitcoin has lost over half its value, at the same time, altcoins have lost close to 70 percent on average. Despite this, hedge funds and other big-money players continue to take up investment positions in digital currency.
Institutional investors continue to reinforce their presence in the crypto and blockchain space. Less than a month ago, CFOs of over 100 hedge funds across the globe indicated an anticipated exposure to crypto for hedge funds for the foreseeable future.
Regulated entities remain focused on exploring crypto investment options, as such, crypto regulations appear to be taking form in numerous jurisdictions. The SEC (Security and Exchange Commission) in the U.S. is being pressured to enact a stronger legal framework for crypto.
Investment Appeal Remains Strong
It was recently announced that hedge-fund giant, U.K.-based Marshall Wace, was ready to create an investment portfolio based on digital assets. At the time of the announcement, the hedge fund of $55-billion was looking at funding for digital finance outfits involved in use cases including payment systems for digital currencies.
According to Amit Rajpal, Chief Executive Officer of Marshall Wace Asia Ltd., digital finance is already having an impact on the financial system.
The company is the latest in an ever-growing list of hedge funds exploring cryptocurrency investment options. In May, the hedge fund participated in a $440-million fundraiser for stablecoin issuer Circle.
Emin Gün Sirer, a professor at Cornel University, noted that the downturn in the market had done little to diminish the enthusiasm of institutional investors for crypto. Sirer noted, “The legitimacy of crypto is beyond question.” As the creator of Avalanche, he is currently receiving inquiries from retirement, not hedge funds. Although retirement funds may move slower, they have considerably more money under their control and are slowly entering the world of crypto.
Big-money Players Embrace Regulation
As an ever-increasing number of institutional players make inroads into crypto, stakeholders are of the opinion that asset managers are not concerned about potential regulatory risks. They see the attention of regulators being focused more on protecting retail investors.
In the meantime, regulated entities such as banks appear to be getting clear mandates from regulators to interact with digital assets. A spokesperson for Nickel Digital stated that they embrace regulation as they feel it brings clarity which in turn brings wider participation from the market.
Germany Passes Landmark Law
The recent changes in Crypto law in Germany could unlock untold millions of dollars into the crypto space.
Early this month, a ruling was passed in Germany allowing institutional funds to earmark as much as 20 percent of their managed assets into crypto. This ruling was passed even though the German Federal Finance Supervisory Authority warned of dangers associated with speculative investments.
This new German law has the potential of $415 billion in investments entering the crypto space. The act is on top of previous rulings that placed security tokens on an equal footing with other regulated investment vehicles.
Dismissing concerns of regulatory scrutiny having a negative impact on institutional involvement, Joe DiPasquale, CEO of BitBull Capital noted that fear of regulation is always present. He added that with a drive towards compliance, there is liable to be a more lenient attitude over time.
Crypto Bulls Will Return After the Summer
If the downturn in crypto provides an investment opportunity for hedge funds as well as other institutional investors, it is anticipated that the strategy being employed relies on the anticipation of a future market bounce.
Emin Sirer stated that he expects to see a return to the upward price of crypto in Q4. Sirer is looking for a resurgence sometime in October or November. He went on to say he is excited about what is to come because of the interest being shown by institutional investors.
Sirer also said that the current period is being used by serious stakeholders as a time for growth as well as consolidation. Just because the market is curr