Hedge Funds Plan Significant Investment in Crypto

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In Brief
  • Within the next five years hedge funds plan to significantly increase their exposure to cryptocurrencies.

  • A survey of 100 hedge fund CFOs expects 7.2% of their assets to be crypto by 2026.

  • Several hedge funds have already started making crypto investments, buoyed by a higher risk tolerance.

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Within the next five years, hedge funds plan to significantly increase their exposure to cryptocurrencies, according to a recent survey.

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Fund administrator Intertrust conducted a survey of 100 chief financial officers of hedge funds managing $7.2 billion globally. According to the results, executives expect to hold an average of 7.2% of their assets in cryptocurrencies by 2026. If found to be representative, this could amount to a total of about $312 billion of assets in crypto. 

Meanwhile, an additional 17% of respondents expect to have more than 10% in crypto. Hedge funds in North American funds were a bit more ebullient, expecting an average exposure of 10.6%. Those in the UK and Europe were a bit more tempered, expecting a 6.8% exposure on average.

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Hedge funds in crypto

Although this would undoubtedly be a significant increase, a number of hedge funds are already playing the field. For instance, Man Group’s AHL unit trades bitcoin futures, while Renaissance Technologies intimated its flagship Medallion fund could invest in bitcoin futures. 

Additionally, hedge fund manager Paul Tudor Jones has also become a Bitcoin advocate. Likening it to a portfolio diversifier, he recently pledged 5% of his own portfolio to Bitcoin. In April, Brevan Howard started buying small portions of crypto while its co-founder, billionaire Alan Howard, has been a major backer of the industry. SkyBridge Capital also started buying Bitcoin late last year before trimming its holding going into April. 

Institutional skepticism

However, this enthusiasm is not unanimous among hedge funds. Paul Singer’s Elliott Management told investors earlier this year that cryptocurrencies might become “the greatest financial scam in history.” Among more traditional asset managers, the appeal drops considerably.

Many are still skeptical of cryptocurrencies due to their pervasive volatility. Others are also concerned about their regulatory uncertainties. 

“For the moment, crypto investments remain limited to clients that have a high risk tolerance and, even then, investments are typically a low proportion of investible assets,” according to a recent report from Morgan Stanley and Oliver Wyman.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.
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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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