Hedge funds expect to hold $310 billion in cryptocurrencies within 5 years – more than 7% of their assets

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Institutional interest in cryptocurrencies like bitcoin has jumped in 2020.

  • Hedge funds plan to ramp up their crypto holdings to more than 7% of assets by 2026, a survey showed.
  • That would equate to around $313 billion of cryptocurrency holdings, Intertrust Group said.
  • Hedge funds have been drawn to the volatility and huge price rises in cryptocurrencies such as bitcoin.
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Hedge fund bosses are planning to ramp up their holdings of cryptocurrencies, predicting that an average of 7.2% of their assets under management will be held in digital tokens by 2026, a survey has found.

That would equate to around $313 billion of cryptocurrency holdings, based on an estimate of the future size of the hedge fund industry, according to Intertrust Group, which carried out the research.

The finding is a sign that many potential institutional buyers are not being put off by bitcoin’s recent plunge, but see cryptocurrencies as a long-term strategy.

“Certain cryptocurrencies, such as bitcoin and ethereum, have delivered incredible – albeit volatile – performance in recent years,” said Jonathan White, global head of fund sales at Intertrust, a Netherlands-based professional services group.

“Inevitably, they have drawn growing interest from hedge funds as well as institutional and retail investors.”

Intertrust’s survey, first reported by the Financial Times, found that one in six respondents expect their funds to have more than 10% in cryptocurrencies in five years’ time. Just shy of all respondents said they expect to have at least some crypto investments by then.

The company polled 100 chief financial officers at hedge funds around the world, with average assets under management of $7.2 billion.

North American hedge funds were the most bullish on crypto, predicting that they would hold around 11% of their assets in digital tokens by 2026.

Given the secretive nature of the hedge fund industry, it’s unclear how much crypto exposure these institutions currently have. Yet most hedge funds that have moved into the space have only committed a small amount. For example, Brevan Howard plans to invest up to 1.5% of its main $5.6 billion fund in cryptocurrencies, it said in April.

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Bitcoin may have to tumble below $30,000 before major buyers are lured back in, JPMorgan’s crypto expert says

Bitcoin symbol at Bitcoin conference people
Bitcoin has fallen more than 40% from its April record high.

  • Bitcoin may have to drop below $30,000 to lure back institutional investors, a JPMorgan strategist said.
  • Nikolaos Panigirtzoglou told Insider that big players started to go off bitcoin over its high price.
  • He said there is little sign of a buy-the-dip mentality and that the bear market may last months.
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Bitcoin may have to slide below $30,000 before institutional buyers are lured back into the market and start pushing the price up again, according to a crypto expert at JPMorgan.

One of the key reasons for the recent tumble in bitcoin’s price has been a sharp decline in interest from big players, Nikolaos Panigirtzoglou, a managing director and global market strategist at JPMorgan, told Insider.

Panigirtzoglou said major buyers were drawn towards bitcoin as the price started shooting up in 2021. But he said the soaring cost then began to put them off.

“If you ask, right now, institutional investors whether $50,000 or $60,000 is looking like an attractive level for bitcoin, they will most likely say no,” Panigirtzoglou said.

“I fear we might need to see bitcoin moving below $30,000 for that institutional interest to pick up considerably.”

Read more:Meet the 11 crypto masterminds at Wall Street firms like JPMorgan, Bank of America, and Morgan Stanley who are helping clients understand the mania

Panigirtzoglou’s view differs from some strategists, who think a drop below $30,000 would likely spell further trouble for bitcoin. Edward Moya, senior market analyst at currency firm Oanda, said on Tuesday that “a break of $30,000 could see a tremendous amount of momentum selling.”

Bitcoin traded at around $37,500 on Friday. That was more than 40% off April’s record high of close to $65,000, but it was around 25% higher than at the start of the year.

Despite bitcoin’s rally in recent days, Panigirtzoglou said he saw little sign that institutions were moving back in. “If I look at these bitcoin fund flows, there is no evidence here of a buying-the-dip mentality,” he said.

He pointed to the futures market, where prices for bitcoin futures have been trading lower than the spot price. Panigirtzoglou said this suggested demand from major institutions – who often use bitcoin futures to gain exposure – was weak.

Bitcoin soared in the first few months of 2021, and was at one point up more than 120% for the year, spurred on by companies such as Tesla adopting the cryptocurrency.

Yet the price began to crater in May after Tesla boss Elon Musk said the electric car company would no longer accept bitcoin as payment due to its “insane” energy use. A fresh crackdown by Chinese authorities also soured the mood.

However, Panigirtzoglou said there were signs as early as March and April that institutional interest was waning, particularly in a sharp slowdown of flows into bitcoin products such as Canada’s exchange-traded funds.

Panigirtzoglou, who edits JPMorgan’s weekly flows and liquidity note, which regularly looks at bitcoin, said the lesson from 2018’s price crash was that the current phase of lower prices could last months.

He said one important metric of whether institutional demand was picking up again would be rising futures prices relative to the spot price. Another positive signal would be if the share of bitcoin in the cryptocurrency market began to grow again, after shrinking in recent months.

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Bitcoin adoption was picking up pace. Elon Musk slamming its ‘insane’ energy use may have stopped that.

FILE - In this Nov. 21, 2019, file photo, Tesla CEO Elon Musk introduces the Cybertruck at Tesla's design studio in Hawthorne, Calif. Tesla CEO Elon Musk appears to have hit all the milestones necessary to receive a stock award currently worth about $730 million to pad the eccentric billionaire's already vast fortune. The electric car maker ended Wednesday, May 6, 2020, with an average market value of $100.4 billion for the past six months, according to data drawn from FactSet Research. (AP Photo/Ringo H.W. Chiu, File)
Elon Musk’s U-turn was a bombshell for the crypto world.

  • Elon Musk’s U-turn on accepting bitcoin as payment due to energy concerns rocked the crypto world.
  • It could also halt the adoption of bitcoin by companies, who are increasingly climate-conscious.
  • Yet enthusiasts argue that Musk remains committed and that cryptocurrencies will bounce back.
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When Elon Musk’s Tesla announced it had bought $1.5 billion of bitcoin and intended to start accepting it as payment in February, the cryptocurrency shot up and speculation abounded that other companies would soon follow suit.

But Musk stunned cryptocurrency fans on Wednesday when he announced that Tesla would stop accepting bitcoin due to fears that its “insane” energy use is hurting the planet. Bitcoin tumbled as much as 15% on Wednesday before recovering somewhat and was around 22% below its record high on Friday.

The idea that big companies – from Jack Dorsey’s Square to Wall Street banks – are buying in or offering crypto services to clients has been a huge driver of the bitcoin boom, adding legitimacy and capital to the market.

But after the most famous crypto enthusiast criticized bitcoin’s energy use, the question is, will companies continue to adopt bitcoin?

Bitcoin clashes with the ESG moment

A key problem for investors attracted by bitcoin’s stellar returns is that the cryptocurrency moment has come at a time when environmental, social and governance (ESG) investing is center stage.

Yet, bitcoin uses more energy than Sweden each year, with vast amounts of computing power required to solve complex puzzles to secure the network and create new coins. Bitcoin’s defenders say it increasingly uses renewable energy but a Bank of America report estimated that 72% of “mining” is done in China, where coal power dominates.

“Over the long term, it is difficult to see how this is consistent with a transition to a low carbon economy,” said David Sneyd, vice president in BMO Global Asset Management’s responsible investment team.

“We consider bitcoin, and other cryptocurrencies, to be a net negative from an ESG standpoint. As it currently stands, the positive potential of bitcoin remains unproven, but the negatives are very real and present.”

None of this was a secret before Musk’s bombshell tweet. But the backing of Tesla – the most famous electric car company in the world – undoubtedly made bitcoin enthusiasts feel more secure about the environmental impact of the digital asset.

On-the-fence companies may think twice

Edward Moya, senior market analyst at currency platform Oanda, told Insider: “A large part of Wall Street has embraced the ESG movement and while Musk didn’t reveal anything new, he brought bitcoin’s CO2 problem center stage.”

Moya said: “Tesla was the first domino that was supposed to unleash a steady wave of fresh interest across corporate America.” But Musk’s move could now “have a big impact on companies that were on the fence about accepting bitcoin as a form of payment or even putting on their balance sheets,” he added.

There are some signs that other advocates are cooling on the digital asset, with Square telling Financial News it had no plans to purchase more bitcoin. The fintech company, founded by Twitter chief executive Jack Dorsey, has been one of bitcoin’s biggest supporters and corporate buyers.

For some, companies buying bitcoin to hold on their balance sheets was always a bad idea, which was never likely to be copied by many big players.

Jerry Klein, managing director of Treasury Partners in New York, told Insider: “We don’t believe there ever was a case for adding bitcoin to corporate balance sheets.

“The vast majority of public companies are focused on cash preservation and don’t want to hold volatile assets. Most treasurers and CFOs see only downsides in taking risk with corporate cash.”

Die-hard bitcoin fans look set to keep buying

However, Oanda’s Moya said that die-hard companies that have bet big on bitcoin look unlikely to change their mind any time soon.

Michael Saylor, chief executive of technology company MicroStrategy, which has bought more than $2 billion of bitcoin, quickly questioned Musk’s move on Twitter. He also announced he had ploughed more money into the cryptocurrency.

David Wachsman, CEO and founder of communications firm Wachsman, told Insider that it is important to recognize that Musk himself has said he remains committed to cryptocurrencies.

“Lost in the hyperbole of the headlines is Tesla’s decision to continue to hold bitcoin on its balance sheet,” Wachsman said.

“This demonstrates its long-term commitment to cryptocurrencies as a technology, and is a pertinent reminder to other corporations of the risk of being phased out of the market without moving on digital currencies.”

Yet in the meantime, it appears Musk’s criticisms have focused investors’ minds on bitcoin’s problems, with numerous financial companies releasing reports into the environmental impact.

In a note to clients, analysts at Swiss bank UBS wrote: “The prospect of large gains may tempt investors, but we think speculation in crypto is a gamble, not an investment.”

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A new wave of institutional interest has boosted bitcoin. Here are the key players getting involved, from JPMorgan to PayPal.

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A growing number of companies are becoming interested in bitcoin.

Bitcoin regained its composure this week to jump to a record high above $60,000, with many analysts pointing to a new wave of institutional interest as the driver.

Goldman Sachs restarting its crypto desk, JPMorgan launching a “crypto exposure” product, and crypto firm NYDIG raising money from Morgan Stanley and others are the latest signs of growing interest in bitcoin.

Skeptics argue that bitcoin is too volatile for investors to start buying in any meaningful quantities and has next to no use value, putting it in line for another collapse.

But a rising number of firms are testing the crypto-waters. Bitcoin enthusiasts argue that “this time is different” for the world’s biggest cryptocurrency, because big-name firms are supporting the price and lending legitimacy to the project.

Here’s a rundown of some of the major players taking steps towards bitcoin.

12 March: MicroStrategy buys another $15 million

Michael Saylor’s business intelligence firm MicroStrategy bought another $15 million worth of bitcoin, it said on Friday. It brought the company’s total holdings to 91,326 units, worth around $5.3 billion on 12 March.

Saylor has long advocated companies investing their cash in the cryptocurrency, and first bought bitcoin in August 2020.

9 March: JPMorgan launches ‘crypto exposure’ product

An SEC filing on Tuesday by the bank showed it is creating a “basket of companies with exposure to cryptocurrency” that will be dominated by MicroStrategy and Square.

JPMorgan will create debt products linked to the performance of the crypto basket, giving investors indirect exposure to the cryptocurrency market.

8 March: NYDIG raises $200 million from big names

Morgan Stanley and Soros Fund Management were among the big names to get behind crypto technology firm NYDIG in a $200 million raise.

7 March: Chinese selfie app Meitu snaps up around $40 million in crypto

The photo-retouching company Meitu, which is hugely popular in China, said it bought about $22.1 million of Ethereum’s cryptocurrency ether and $17.9 million of bitcoin.

1 March: Goldman Sachs relaunches crypto trading desk

Reuters reported that Goldman would restart its crypto desk and begin dealing bitcoin futures and non-deliverable forwards for clients in March.

The bank’s chief operating officer John Waldron said later in March that “client demand is rising” for bitcoin. And Goldman survey of nearly 300 clients found 40% had exposure to cryptocurrencies.

February 23: Jack Dorsey’s Square buys $170 million more bitcoin

Twitter boss Jack Dorsey’s fintech company Square bought another 3,318 bitcoins for $170 million. That took its holdings to more than 8,000, worth upwards of $450 million on 12 March.

Jack Dorsey
Square founder Jack Dorsey is a crypto-backer.

February 18: First North American bitcoin ETF launches

Canada has now approved 3 bitcoin ETFs, but the US is yet to approve any. Experts say ETFs could spur further rises in the bitcoin price by allowing more institutions to invest.

Canada’s Purpose Bitcoin ETF, the first to launch, had 913 million Canadian dollars ($731 million) under management on 11 March.

February 11: BNY Mellon plans to issue, hold and transfer clients’ bitcoin

Bank of New York Mellon plans to issue, hold, and transfer clients’ bitcoin, The Wall Street Journal reported. America’s oldest bank will soon allow digital currencies to be treated the same as more orthodox investments in its asset-management system.

February 10: Mastercard will allow merchants to accept select cryptocurrencies

Mastercard will begin allowing customers to use some cryptocurrencies on its network later this year, although it did not specify which.

“We are preparing right now for the future of crypto and payments,” Raj Dhamodharan, executive vice president of digital asset products said in a blog.

February 8: Tesla says it invested $1.5 billion in bitcoin

Elon Musk’s Tesla powered a jump in the bitcoin price by announcing it had invested $1.5 billion in bitcoin in January. It also said it plans to accept bitcoin as payment.

Some critics said the bet had exposed the automaker to “immense” risks that could hammer its profits if the bitcoin price plunges.

January 21: BlackRock authorizes funds to invest in bitcoin futures

The $8 trillion asset manager BlackRock has authorized two of its funds to invest in bitcoin futures, according to January filings with the Securities and Exchange Commission.

November 27: Guggenheim reserves right to invest in Grayscale Bitcoin Trust

Guggenheim disclosed in an SEC filing that its Macro Opportunities Fund held the right to invest up to 10% of its net asset value in Grayscale Bitcoin Trust.

The Grayscale trust, the world’s biggest bitcoin fund, has become a key way for institutional investors to gain exposure to the cryptocurrency.

October 21: PayPal announces it will let customers buy and sell bitcoin

PayPal was in many ways a pioneer when it jumped into crypto in October 2020, allowing customers to buy, sell and hold bitcoin and other currencies using online wallets.

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Citi says bitcoin could become the currency of global trade in a ‘massive transformation’ – or it could implode

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Citi said bitcoin is at a “tipping point.”

  • Bitcoin could be at the start of a “massive transformation” into the mainstream of finance, Citi said.
  • The bank said it could even become central to global trade if innovation and adoption continues.
  • Yet it said bitcoin is at a “tipping point” and could implode if investors go off the technology.
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Bitcoin could be at the start of a “massive transformation” into the mainstream of finance, a major report from Citi has said, and could even become the currency of global trade.

However, Citi analysts said bitcoin is at a “tipping point” and could also suffer a “speculative implosion”. They said improvements to cryptocurrency systems would be needed to drive wider adoption, and said increased regulation could drive away some of the most innovative players.

In a 108-page deep-dive into cryptocurrencies, Citi said there had been a major change in bitcoin from “primarily a retail-focused endeavor to something that looks attractive for institutional investors” as they search for higher returns and alternative assets.

Citi’s analysts speculated that a rise in other bitcoin-like products – such as private “stablecoins” and central bank digital currencies – would add legitimacy to the crypto world, while making such technologies easier to use and more integrated into economies.

“In this scenario, bitcoin may be optimally positioned to become the preferred currency for global trade,” a team of Citi analysts led by Sandy Kaul, global head of Citi’s business advisory services, said. in a report.

“It is immune from both fiscal and monetary policy, avoids the need for cross-border foreign exchange (FX) transactions, enables near instantaneous payments, and eliminates concerns about defaults or cancellations as the coins must be in the payer’s wallet before the transaction is initiated.”

The report highlighted increased acceptance of cryptocurrencies by companies such as PayPal, Mastercard and Tesla, and said bitcoin’s scarcity means investors are increasingly comparing it to “digital gold.”

These developments have helped drive the price of bitcoin up more than 400% over the last year, although it sank more than 20% last week. The bitcoin price (BTC) stood at around $47,800 on Monday.

Yet Citi said there were a number of “obstacles and challenges” to be overcome, and said there would have to be “upgrades in the way the marketplace works.” For example, big investors would want more guarantees on safety and for the market to be more efficient before they pile in, the bank said.

The bank’s report also said increased acceptance of bitcoin would bring about more regulation, which could drive away some of the most innovative players.

“Many of the most innovative and talented developers may choose to withdraw from established platforms deploying more extensive oversight and monitoring. This could end up dividing the liquidity in the system.”

Citi said bitcoin’s future is “unknowable”. But it added: “Developments in the near term are likely to prove decisive, as the currency balances at the tipping point of mainstream acceptance or a speculative implosion.”

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Bitcoin is irrelevant to financial markets and investors ‘are going to weep’ if regulators come down hard on crypto, says Kevin O’Leary

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  • Kevin O’Leary told CNBC on Thursday bitcoin is irrelevant to financial markets and at risk of regulation. 
  • His comments come as an increasing number of institutions like Guggenheim and SkyBridge capital invest millions into the cryptocurrency, driving a rally of over 200% in 2020. 
  • “I’m waiting for the day that one of these regulators comes down hard on bitcoin. Grown men are going to weep when that happens. You’ll never see a loss of capital like that ever in your life. It will be brutal,” he said. 
  • Treasury Secretary Steven Mnuchin is proposing new regulation that would require certain cryptocurrency traders to provide more information about their identities and cryptocurrency transactions.
  • View Business Insider’s homepage for more stories.

Kevin O’Leary told CNBC on Thursday that bitcoin is irrelevant to financial markets and too at risk of regulations to be taken seriously by institutional investors.

“Is this a nothing burger? It’s not even a single cell amoeba,” the O’Shares chairman said,
“I love to talk about it, it’s fun to watch it go up and down, but during the day, when the bell rings, I don’t talk to anybody that’s worried about this. They do not put capital to work in bitcoin.”

His comments come as more institutional players are piling in, validating bitcoin’s legitimacy as a store of value and hedge against inflation. Earlier this week, SkyBridge Capital invested $25 million into a new bitcoin fund, while last month, Guggenheim filed to reserve the right for 10% of its $5.3 billion Macro Opportunities Fund to invest in the Grayscale Bitcoin Trust.

Read more: Renowned strategist Tom Lee says to buy these 29 stocks that were ravaged by the pandemic but now poised to boom as the world reopens – and they’re all top-rated by 3 different investing strategies

O’Leary said that the concept of a digital currency will likely come to fruition in the future, but investors should be careful glorifying bitcoin while it has yet to fulfill a defined role in financial markets and while it could still be regulated. This year, bitcoin has skyrocketed over 200%, and many crypto bulls are forecasting an explosion of growth in 2021. 

Though regulations could be coming for the popular token. Treasury Secretary Steven Mnuchin is proposing new rules that would require certain cryptocurrency traders to provide more information about their identities and cryptocurrency transactions. This doesn’t appear to have scared off various institutional investors, but O’Leary, who said he has $52.77 in a crypto wallet, is more worried.

“I’m waiting for the day that one of these regulators comes down hard on bitcoin. Grown men are going to weep when that happens. You’ll never see a loss of capital like that ever in your life. It will be brutal,” he said. 

O’Leary added: “This whole market, even if Bitcoin were to go up, another 2000% is completely irrelevant to the institutional client.”

Read more: ‘I don’t see this ending well’: A 47-year market vet breaks down why stocks are a ‘few months’ away from a 75% crash – and says gold will surge to $10,000 because of a tidal wave of inflation

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Anthony Scaramucci’s SkyBridge hedge fund just invested $25 million in a bitcoin fund as it sees an ‘avalanche of institutional investors’ buying crypto in 2021

Anthony Scaramucci
  • Anthony Scaramucci’s SkyBridge Capital just launched a bitcoin fund and invested $25 million of capital. It will go live to outside investors in 2021.
  • After bitcoin’s 200% rally this year, investors may be hesitant to buy bitcoin at current levels. But Scaramucci told CNBC the coin is in its “early innings,” and he wants to get in before the price soars even higher. 
  • “We could be at the precursor of an avalanche of institutional investors heading in,” Scaramucci said on Tuesday.
  • Visit Business Insider’s homepage for more stories.

The latest institutional investor to dive into bitcoin is SkyBridge capital, Anthony Scaramucci’s hedge fund. The $9.3 billion firm filed an SEC form D on Monday to launch the “SkyBridge Bitcoin Fund L.P.”

Scaramucci told CNBC that the fund started trading on Tuesday with $25 million of SkyBridge’s funding, and will go live to outside investors who can invest a minimum of $50,000 on January 4.

After bitcoin’s 200% rally this year, investors may be hesitant to buy the cryptocurrency right now in fear that a post-rally pullback is on the way. But Scaramucci said bitcoin is in its “early innings,” and he wants to get in before the price soars even higher.

“We could be at the precursor of an avalanche of institutional investors heading in,” Scaramucci said in a Tuesday CNBC interview. He added there may be a large swath of investors buying bitcoin in the first quarter of 2021 because they didn’t want to put it on their balance sheets in 2020.

Read more: The CIO of a new crypto fund that has returned 220% to investors this year explains why bitcoin topped $20,000 for the first time ever this week – and shares another digital currency set to become the ‘asset of the year’ in 2021

The SkyBridge Capital founder also said bitcoin will be a “very strong asset class” over the next decade given the monetary supply and current central banking coordination. 

SkyBridge joins a growing group of institutional players that are acknowledging bitcoin’s legitimacy as a store of value. Last month, Guggenheim filed to reserve the right for 10% of its $5.3 billion Macro Opportunities Fund to invest in the Grayscale Bitcoin Trust.

Other firms like MassMutual have invested in the cryptocurrency as well. Meanwhile, billionaire investors such as Stanley Druckenmiller and Paul Tudor Jones have  publicly discussed their bitcoin purchases.

Read more: BANK OF AMERICA: Buy these 16 medtech stocks with strong fundamentals that are set to soar post-pandemic

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