Despite the ongoing geopolitical tensions sapping retail traders’ appetite for risk, mainstream hedge funds have been loading up in the past four months at an unprecedented rate.
Wall Street veterans including Tudor Investment Corporation and Brevan Howard Asset Administration LLP have been silently expanding their balance sheets to crypto, WSJ cites sources familiar with the matter.
In January, hedge fund Brevan Howard leaped into crypto under a new flagship vehicle dubbed BH Digital citing increased demand after crypto prices printed a new high in November 2021. The fund which manages slightly over $250 million further noted that they expected the new unit to attract over $1 billion.
BH whose crypto unit is overseen by 10 portfolio managers has reportedly been making active bets on the direction of Ethereum and Bitcoin while browsing for arbitrage between cryptocurrencies. The firm is also invested in a list of blockchain and crypto businesses.
On the other hand, Billionaire Paul Tudor Jones of Tudor Investment Corporation has been making sizeable bets on digital assets as they increasingly stand out as a hedge against inflation. Another New York hedge fund, Hudson Bay Funds Management LP, has also been reaping a fortune investing in crypto-related firms with its $15 billion endowment fund.
Citadel Securities LLC, a leading market marker has also been silently fusing its business with crypto. In January, the Illinois-based fund received a $1.15 billion investment from crypto-related venture-capital firms Sequoia Capital and Paradigm spurring hopes of further professionalizing the crypto industry.
A recent report by Coinbase put the total amount of crypto traded by institutional traders in 2021 to $1.14 trillion, a figure that was twice the $535 billion for unique traders.
In contrast to a picture seen three years ago, more veteran hedge funds are joining the cryptocurrency wave now as the movement of digital asset prices increasingly aligns with those of stocks.
“More funds see crypto as a fifth asset class,” Robert Bogucki, a managing director at crypto firm Galaxy Digital Holdings Ltd told the WSJ. “It’s large ample now.” He added.
Bogucki, who has been in the crypto business for a while now, managing well over $3 billion in crypto at Galaxy says that, unlike stocks, most hedge funds are unwilling to short cryptocurrencies, as they could shoot up in price without notice. They have similarly opted to trade crypto futures on bourses rather than options to avoid wild volatility.