Risk and potential: What is hedge funds’ Bitcoin strategy?

Cryptocurrencies have carved made a niche for themselves in many people’s portfolios and the adoption will only increase in time. In fact, it is expected that by 2026, hedge fund executives will hold an average of 7.2% of their assets in cryptocurrencies.

This was suggested by a survey carried out by fund administrator, Intertrust, a survey that saw participation from 100 hedge funds globally. If the aforementioned figures are replicated across the sector, it would come to a total of $312 billion of assets in cryptos.

Hedge funds have been deeply involved with cryptos for a while now and according to the survey, 17% of respondents expect to have more than 10% in crypto. This figure already represents a huge appetite among the industry’s hedge funds. In fact, such an uptick in the same has also corresponded with the wider adoption of Bitcoin.

Prominent hedge fund manager Paul Tudor Jones bought into Bitcoin, while Brevan Howard was seen moving small portions of his funds into crypto too. Jones had previously recommended investors allocate 5% in Bitcoin in an interview with CNBC after taking a huge swipe at the Federal Reserve for suggesting higher inflation was temporary.

“I say OK, listen. The only thing that I know for certain is I want to have 5% in gold, 5% in Bitcoin, 5% in cash, 5% in commodities at this point in time.”

Of late, however, while the confidence in the market has been growing, hedge funds remain wary. In fact, the survey suggested that investors had put in only a small percentage of their assets in crypto. For instance, Morgan Stanley and Oliver Wyman mentioned in a recent report,

“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 investable assets.”

David Miller, Executive Director at Quilter Cheviot Investment Management, added,

“Hedge funds are well aware not only of the risks but also the long-term potential of cryptos.”

This wariness among hedge funds and even institutions stems from the volatility in the crypto-market and the lack of regulations. The future of regulations for cryptos remains unclear, but the Basel Committee on Banking Supervision did note recently that they should carry the toughest bank capital rules of any asset.