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Cryptocurrency funds in demand as institutions see Bitcoin as a hedge alternative

June 1, 2020

While the theater world is waiting for Godot, cryptocurrencies have their own drama: waiting for the institutional investor. There have been some promising sightings lately. Grayscale Investments has bought Bitcoin (BTC) at an affordable price in recent months.

In fact, the fund has accumulated BTC at a rate equal to 150% of all newly mined bitcoins since halving May 11-12, Cointelegraph reported Thursday. The enterprise Has It now manages $ 3.2 billion in assetsor AUM for the acronym in English (Assets Under Management) in your Bitcoin Trust in grayscale. Significantly According to the company, more than 90% of the new cash inflows come from institutional actors.

Grayscale may not be the only ones that attract institutional attention. Eric Ervin, President and CEO of Blockforce Capital, a crypto asset management company, told Cointelegraph: “We see more institutional interest. I think this would apply regardless of the halving or quantitative easing, all the more given the unprecedented global fiscal and monetary stimulus“”

Cryptocurrency funds in demand as institutions see Bitcoin as a hedge alternative
Cryptocurrency funds in demand as institutions see Bitcoin as a hedge alternative

Lennard Neo, head of research at Stack Funds, told Cointelegraph that institutional investors were looking for alternative solutions to not just generate returns. but also to protect your existing portfolio from further downside risks, explained:

Similar to Grayscale, Stack has seen an increase in investor interest in Bitcoin – almost twice as much as it did before the March crisis. […] I would not say that they devour BTC blindly, but rather carefully look for traditional structured solutions that they are familiar with before making an investment. “

Paul Cappelli, portfolio manager at Galaxy Fund Management, told Cointelegraph: “We see increased interest from multiple levels of investors – asset channels, independent registered investment advisors and institutions.” The recent halving of BTC occurred at an interesting time when the COVID 19 outbreak broke out and disquiet about quantitative easing increased. He showed: “It has clearly shown that the BTC shortage and future supply cuts have deepened as concerns over the Federal Reserve’s unprecedented money issue under the CARES law.“”

Goldman Sachs raises questions

However, not everyone knocks on the door of Bitcoin. In a presentation to investors on May 27, Goldman Sachs, the historic investment bank, He cited five reasons why cryptocurrencies aren’t an asset class, including Bitcoin., notes: “Although hedge funds find cryptocurrency trading attractive due to its high volatility, this attractiveness is not a viable investment basis.”

Cryptocurrency users reacted fiercely. Regarding the quality of Goldman Sachs’ recent Bitcoin research, Tyler Winklevoss of Gemini explained in a Tweet: “Today you’ll end up on Wall Street if you can’t do this in crypto“” – and continue on May 28th with: “The day then that Goldman Sachs says not to buy Bitcoin will increase Bitcoin by $ 500“Mati Greenspan of Quantum Economics wrote in its May 27 newsletter:”Regardless of what Goldman Sachs’ sales analysts have to say, it’s clear that institutional interest has increased lately. “

Regarding the adequacy of the investment, a recent Bitwise Asset Management research report highlighted the need to include Bitcoin in a diversified portfolio of stocks and bonds, with the average finding that “An allocation of 2.5% in Bitcoin would have increased the cumulative three-year return of a traditional portfolio of 60% stocks / 40% bonds by an astonishing 15.9 percentage points“”

Overwhelm the market?

In the period of approximately two weeks since the BTC rewards were halved, reducing the Block Miner’s reward from 12.5 BTC to 6.25 BTC, 12,337 Bitcoin have been mined reported Investigator Kevin Rooke on May 27th. During the same period, the Grayscale Bitcoin Trust bought 18,910 Bitcoin – about 1.5 BTC for each Bitcoin created. This has raised some questions about overall BTC care.

Changpeng Zhao, CEO of Binance commented Rookes results in a tweet: “Not enough new offer for everyone, not even one [es decir, Grayscale]For his part, Greenspan told Cointelegraph: “It seems that institutional players are gradually becoming a much larger part of this small market.” Could you overwhelm the market? “Whales have always been a problem“he said.

As previously mentioned, grayscale investments reported AUM of $ 3.2 billion at the end of May. In this context, the total AUM of cryptocurrency hedge funds rose from $ 1 billion in the previous year to over $ 2 billion in 2019 2020, according to the PricewaterhouseCoopers-Elwood Cryptocurrency Hedge Fund Report. Most cryptocurrency hedge funds trade Bitcoin (97%), followed by Ethereum (67%), with the vast majority of cryptocurrency hedge fund investors (90%) family offices (48%) or wealthy individuals (42%).

However, this is an incomplete comparison as the PwC Elwood report only covered hedge funds and excluded cryptocurrency index funds – including passive / follower funds like Grayscale’s, which essentially track the price of BTC. Henri Arslanian, global PwC leader, told Cointelegraph: “Rise or fall only based on the BTC price and not based on the skills or activities of the fund managerCryptocurrency venture capital funds that have stakes in cryptocurrency companies were also excluded. However, the comparison suggests an order of magnitude of Grayscale’s bitcoin allocation.

When Cointelegraph contacted Grayscale Investments, it declined to provide specific details about the recent purchase of BTC or why other institutional investors may be buying BTC. “”We won’t be talking about the momentum after the halving until mid-July when we release the second quarter numbers.“said a spokesman.

However, Michael Sonnenshein, CEO of Grayscale Investments, told Cointelegraph that investors have tried to protect their portfolios from market shocks or in uncertain times with fiat currencies, government bonds and gold:

“All three have problems this time. Bitcoin has emerged as an alternative hedge and works regardless of the dramatic monetary policy of central banks“”

Other factors

Halving is the most dramatic and immediate BTC event in recent times, but industry sources have mostly given other reasons for the recent institutional attention. Economic stimulus packages such as the $ 3 trillion coronavirus aid package approved by the United States House of Representatives on May 15 – and the resulting fear of inflation – are her primary concerns. David Lawant, Research Analyst at Bitwise Asset Management, told Cointelegraph:

“In our opinion, institutional interest has increased since the beginning of the year, but it has really increased following the unprecedented government response to the COVID 19 crisis.”

Neo led increasing geopolitical tensions, for example between the United States. and China, the “More tensions in an already weakened economy and thus the attractiveness of BitcoinArslanian said to Cointelegraph:

“We continue to see growing interest from institutional investors. However, more than half is the availability of offers of institutional quality, from products from regulated cryptocurrency funds to regulated depositaries, and many offers that make this possible.”

The inclusion of hedge fund symbols such as Paul Tudor Jones should also be considered. Jones’ latest letter “Defending Bitcoin as his preferred hedge against what he calls “big money inflation” has significantly reduced the career risk of many of his colleagues who are considering using BitcoinThe lawyer told Cointelegraph: In a May investment report, Cappelli wrote:

“Not only has the institutional infrastructure evolved, but as the world has changed, key players are entering the room. The most successful hedge fund of all time, Renaissance Technologies, recently announced its intention to trade bitcoin futures.” .

Stand out

Attorney believes that: “From top investors’ perspective, I think 2020 is the year Bitcoin went from venture capital gambling to macro hedging.“”

In addition, the halving event also had some impact, as Arslanian believes more attention has been paid to how Bitcoin works, adding: “The fact that this happened while the world went through a record-breaking quantitative easing of central banks also highlighted how money is created and what role it plays in society.Ervin added that people who otherwise ignored this asset class are starting to realize it. He continued:

“As with any disruptive technology or asset class, explorers and pioneers enter first, then more people slowly before technology finally crosses the abyss and reaches the acceptance and investment of traditional markets. I would say we are in the first days.”

In summary, global unemployment has increased and the economic impulses are clearly felt in the minds of governments and central banks. The recent $ 826 billion virus recovery plan proposed by the European Commission is just the latest example. In these particular circumstances, quantitative easing may be necessary, but this has triggered inflation alarms among some institutional investors.

Related: Cryptocurrencies and FIAT currencies are completely different and these are the reasons

The halving event may not have prompted financial institutions to invest in Bitcoin, but it again reminded them that BTC has a fixed supply (21 million BTC) unlike Fiat currencies. Given the world’s inflationary fears, is it surprising that institutional players can put bitcoin money in the way of hedge funds?

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