With blockchain technology and its derivative projects gaining notoriety, crypto-assets are riding the wave started by Bitcoin in 2008.
The gradual confidence gain, demonstration of safety, and high potential returns have piqued not only the interest of retail investors, but institutional interest as well, resulting in increased adoption.
Cryptocurrencies are no longer seen just as dubious elements of a passing internet “fever”, but as a fundamental aspect and pillar of what is the new era of finance. Adoption and incorporation by traditional institutional players was inevitable and is now on an upward path with large hedge funds validating successful strategies based on crypto asset management.
With notable growth in recent years, the crypto-assets ecosystem continues to develop and increasingly attract the attention of investors.
Over the last 13 years, blockchain technology, introduced to the great mass with the spread of Bitcoin in 2008, has not only expanded the options for cryptocurrencies and tokens with different functionalities available on the market, but also continues to evolve and improve the image of this new class of assets against the traditional financial market.
Once mostly associated with cybercrime and the passing trend, today cryptocurrencies are seen as the vanguard of the technological revolution, with increasing institutional adoption. For example, at the end of last year, 10 of the 100 largest hedge funds in AUM (Assets Under Management) in the United States were already part of Coinbase's client base, a large
cryptocurrency exchange in the world.
Although there are still security and usability issues, they are issues that are continually being worked on and that are diluted in the midst of a vast market, not focusing on the main assets and projects of the segment.
Not only in Brazil, but around the world, the growth of curiosity about cryptocurrencies is evident. According to research by Sherlock Communications, the potential market for expanding cryptocurrency adoption in Latin America is fertile and has great prospects for expanding in the coming year.
The increased understanding of blockchain technology and its benefits for transactional security in the digital environment has meant that cultural and structural aspects of traditional finance have been demystified and made room for this new technology, attracting companies and governments to get involved in their own projects, involving crypto assets as well as professional investors.
In the hall of new adepts, institutional investors, particularly large traditional institutions, are a strong group. The return opportunities made possible by cryptoassets, together with the diversity of technical-financial handling strategies that this type of asset makes possible, draws the attention of large companies as a mechanism for obtaining attractive returns.
Not only does the interest in digital assets continue to increase, but the movement of this new segment is infiltrating the finance mainstream and growing stronger with the number of cryptocurrency-focused hedge funds showing growth.
Since the market crash in March 2020, hedge funds have invaded the cryptocurrency world in search of opportunities.
According to data released in the 3rd Annual Global Report of Crypto-Hedge Funds (2021), more than a fifth of traditional hedge funds also invested in digital assets (21%) and, of these, 85% showed a desire to invest more capital in the digital asset class until the end of last year.
There are currently around 150 hedge funds focused exclusively on cryptocurrencies, with more than $1 billion under Asset Under Management (AUM) in different territories. But what are these funds and how do they encompass crypto in practice?
Hedge Funds are known for their objective of seeking the highest possible profitability while protecting the portfolio from possible financial losses, especially in scenarios of potential downturn - bear market.
Compared to other financial products, they tend to be more profitable, as they employ strategies to maximize returns.
For the choice of assets, liquidity and market capitalization criteria are used. Most funds focus on the main tokens and coins on the market: BTC (present in the portfolio of 92% of funds), ETH (67%), LINK (30%), DOT (28%) and AAVE (27% ), among others.
Among the 150 existing exclusive funds, we will talk about the main ones.
Created in 2003 by Dan Morehead, Pantera has been operating in the crypto space since 2013 with the creation of the Pantera Bitcoin Fund. The manager is one of the oldest investment companies in digital assets, being the first in the United States (California) to focus exclusively on blockchain and cryptocurrencies and having
an AUM of $5.6 billion.
Its five funds are suitable for institutional investors or people with very high net worth, since the minimum contribution is US$ 100,000.
| Name | Type | Liquidity | Assets |
|---|---|---|---|
| Blockchain Fund | Actively managed exposure to all facets of the blockchain and cryptocurrency venture capital markets | When the Fund finish | venture capital, early stage tokens and liquid tokens |
| Liquid Token Fund | Actively managed exposure to publicly traded digital assets | Quarterly | Publicly traded tokens |
| Initial Stage Token Fund | Actively managed exposure to early stage blockchain protocols following a risk style model | Quarterly | Private investments in symbolic projects before launch |
| Bitcoin Fund | Passive exposure to Bitcoin with daily liquidity and low fees | Daily | Bitcoin |
| Risk Fund | Active and multi-stage exposure to companies building products and services on the blockchain ecosystem | When the Fund finish | Equity |
The investment firm founded in 2016 by Olaf Carlson-Wee
(former Coinbase employee) focuses its products on blockchain technology and cryptocurrencies, focusing on disruptive projects with solid foundations to get ahead of the market.
Committed to exceptional returns for investors through actively managed portfolios, the California-based company boasts an AUM of $6.6 billion.
Galaxy Digital is a financial services and investment management company that aims to provide clients with a set of financial solutions exploring the possibilities of the digital asset ecosystem.
Founded in 2006 by Michael Novogratz, the New York-based firm has a robust team of professionals with capital management expertise.
The manager offers a hall of diversified products, with different strategies, rates, parameters and composition.
Founded in 2013 and headquartered in New York, Grayscale is one of the biggest current holders when it comes to crypto hedge funds.
With the philosophy that “investors need to create financial legacies that stand the test of time”, the company focuses on promoting accessibility to the digital economy for the investor in a simplified way.
Offering a multitude of products, exploring the most diverse cryptocurrencies and strategies for extracting value from them, Grayscale owns the largest publicly traded bitcoin fund with an AUM of $24.1 billion.
PwC's annual crypto hedge fund research report found that traditional hedge funds are increasingly investing in digital assets, with an average percentage of total AuM allocated at 3%.
Asked about the reasons for including digital assets in their portfolio, fund managers pointed to “exposure to a new ecosystem of value creation” (29%) as a top motivator.
The Cayman Islands and the United States were the top places of domicile for crypto hedge funds in the world in 2021, with more than 60% of crypto hedge funds in their territory.
The two continue to intersperse positions in the latest PwC surveys.
As the main obstacle to institutional investment in crypto-assets, the managers of the funds considered in the aforementioned survey signaled regulatory uncertainty and customer reaction/reputational risk.
It is understood that much of this feeling is due to the still incipient structure of the regulatory culture involving cryptographic digital assets.
In addition to quantitative and discretionary strategies involving direct, structured, sales and purchases operations, hedge funds have also expanded their operations in recent years to take advantage of the possibilities enabled in the crypto-assets segment in order to exploit them to the fullest and extract the best risk ratios. - their return.
Below we see that the funds also used staking, lending and borrowing strategies.
In terms of core investment strategies, digital asset hedge funds in 2021 mostly fell into the categories of fundamental (57%) and trading (57%) strategies.
There are many crypto-focused hedge funds to invest in, with increasingly diverse options in strategy and operating mechanism.
Despite the risks inherent in operations, the growing trend of cryptocurrency adoption shows that this movement of penetration and coexistence of digital assets in traditional finance has great prospects for maintaining itself.
Not only with the rise in values on the management of large hedge funds around the world, but with the expansion of investment initiatives in general related to cryptocurrencies.
This is the new age of investment and finance. Cryptoassets are already essential in investment portfolios as alternatives for diversification and circumventing inflationary situations, for example.
Gaining space in retail and, especially, in large financial institutions brings hope and expectation about the next steps and how this new segment of financial assets can unfold even more in the daily routine of the investor.
