Many leading hedge funds are aggressively increasing exposure to blockchain technologies and cryptocurrency.
This week Antigua-based crypto derivatives exchange FTX closed a record $900 million fundraise at an $18 billion valuation. Hedge fund leaders Paul Tudor Jones, Alan Howard, Third Point and Millennium were among those participating in the funding. FTX has quickly become one of the main challengers to Coinbase and Finance. FTX averages more than $10 billion in daily trading volume and has more than 1 million users, ranging from retail investors to sophisticated day traders, family offices and experienced institutional traders.
As background, blockchain technologies, and Bitcoin in particular, allow users to create a system to exchange value without a third-party intermediary. Advocates say accumulating ownership of blockchain technologies allows participation in a vast and essential computing network in development.
This week the concerns about the strength of the economic recovery weakened risk assets generally. At one point early yesterday over $89 billion had been wiped off the cryptocurrency market in a 24-hour period. As a reference point, in April global assets in cryptocurrency topped $2 trillion for the first time.
Bitcoin has the largest market share in crypto. Since Bitcoin’s all-time high of nearly $65,000 in mid-April, its price has plunged over 50 percent. At yesterday’s price of $29,730, it is still up 2 percent for the year. Market technicians predict we are on the downside of a technical head and shoulders formation for Bitcoin. Many call for the upward price march to reboot to $50,000-$100,000 within the next 12 months.
Non-hedge-fund savvy investors typically accumulate cryptocurrency with dollar cost averaging over a multi-year period. Institutional investors are advised to invest 1-5 percent, and individuals 1 percent.
Cryptocurrency is largely unregulated. A recent Financial Times editorial opined, “Waiting for Gensler on crypto has turned into the Wall Street equivalent of Waiting for Godot.” Many wonder when the federal government will step in, especially with crypto seeming the currency of choice for illicit activity. For example, in June the US Department of Justice seized $2.3 million in cryptocurrency paid to the ransomware extortionists Darkside.
Banks have much to lose as cryptocurrency becomes more adopted. In response, both commercial banks and central banks are working to bring out their own digital currencies—however, these are not cryptocurrencies but fiat currencies.