Hedge funds, these major players in traditional finance, are now turning their attention to a market once considered too unstable: cryptocurrencies. According to a recent report from the Alternative Investment Management Association and PwC, nearly 47% of hedge funds that typically trade in traditional markets now hold digital assets. This figure marks a significant development compared to previous years. If 2023 saw 29% of these funds diving into crypto, today, almost half of them are seizing the opportunity of digital currencies. But what motivates this sudden craze?
Crypto: a response to the search for diversification
For hedge funds, diversification is crucial, and crypto offers new prospects. The crypto market indeed presents more volatile movements and potential returns that many investors today consider unparalleled.
With the introduction of more precise regulatory frameworks in the United States and Asia, the cryptocurrency market is now more accessible and less risky for these traditional financial institutions.
Hedge fund interest in crypto is also supported by the emergence of new financial products, such as exchange-traded funds (ETFs) based on Bitcoin and other digital currencies.
These products offer hedge funds a regulated way to gain exposure to digital assets, while avoiding some of the complexities associated with direct purchases of cryptocurrencies. ETFs, for example, facilitate the process by allowing funds to track the price movements of Bitcoin without having to directly manage the assets.
As reported Bloomberg, this transition is not trivial. For hedge funds, turning to cryptos demonstrates their desire to explore alternative avenues that can bring significant gains, but also hedge against the risks associated with traditional assets.
In a context where returns on bonds and other traditional securities are often low, cryptos represent an option of choice for higher potential gains, despite their volatility.
A major trend for 2024: expansion towards digital assets
The study shows that the crypto craze among hedge funds is not just a fad. Indeed, among hedge funds already invested in cryptocurrencies, 67% plan to maintain their current level of investment in 2024, while others even plan to increase their holdings.
This growing enthusiasm suggests a possible revaluation of cryptocurrencies by major financial players, who now see them as a potential pillar of their portfolios.
Why such a change of perspective? Some hedge funds anticipate mass adoption of cryptocurrencies across the world.
The idea that digital assets could one day compete with gold or other safe havens is becoming less and less utopian. Furthermore, blockchain technology, which underpins cryptocurrencies, opens up endless possibilities in terms of traceability, transparency and security, strengthening the confidence of institutional investors.
In addition, industry giants such as Fidelity and BlackRock are also interested in crypto derivatives, which brings additional legitimacy to the market.
The participation of these big names encourages hedge funds to follow the trend and position themselves upstream to capture market share. As the market structures itself, hedge funds are even considering incorporating sophisticated trading strategies, applying proven speculation techniques from stock markets to the crypto universe. Meanwhile, HBO reveals Satoshi Nakamoto and shocks the crypto community.
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