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.
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.”
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.
As a college student, Mary Spanjers was always willing to participate in academic experiments on campus. She enjoyed getting a firsthand look at research, and the compensation in the form of cash or food was often an extra incentive to get involved.
Years later, a free giveaway from one experiment is still paying off: one-third of a bitcoin.
In 2014, the MIT Bitcoin Project allowed every undergraduate on campus to claim fractional ownership of a bitcoin, for free. Spanjers, who was first profiled in a Bloomberg article about the experiment, applied for the study along with about 3,100 other students.
Each student had to fill out a questionnaire and go over an educational handout, then they set up a digital wallet with $100 worth of bitcoin, according to Bloomberg.
One-third of a bitcoin is now about $13,000, meaning anyone who held on to the cryptocurrency has seen a roughly 13,000% return.
It’s unclear how many participants still own the bitcoin. One in ten cashed out in the first two weeks, and one in four had sold by the time the experiment ended in mid-2017, Christian Catalini, an MIT associate professor who oversaw the study, told Bloomberg.
Many students sold the bitcoin to pay for items like food, not wanting $100 to sit idly.
“It dropped down from $100 to $50 pretty soon after the study started, and a lot of people freaked out and got pizza,” Spanjers told Insider.
The 24-year old MIT graduate and now software engineer knew very little about bitcoin when she first participated in the experiment.
She didn’t check her holdings that often, but she did need to move the bitcoin a few times into new wallets as previous ones stopped accepting the cryptocurrency or shut down. She now said it’s incredible that she sometimes questioned whether it was worth it to go through the effort to change the wallet.
The MIT experiment was created by Dan Elitzer, then an MBA student who had just founded the school’s Bitcoin Club, and Jeremy Rubin, an undergrad computer science major. The students sought to “to take a glimpse into the future and see what’s possible with this technology,” Elitzer told Bloomberg.
Elitzer now runs crypto investment firm Nascent, while Rubin is the CEO of Judica Inc, a bitcoin research and deployment organization. Professor Catalini co-created Facebook’s cryptocurrency Diem, formerly Libra.
Spanjers told Insider she has no plan to sell her bitcoin anytime soon. Instead, she’s curious to see how far the investment could go, and if the cryptocurrency will ever be used as a form of payment.
“It’s a little like when you go to the casino and they give you the $20 of free play,” she told Insider. “It’s just like, ‘no problem, I’ll take that $20 of free play and just keep playing with it.”
If her one-third bitcoin ever grew to more than the price of MIT tuition, then she’d consider selling.
“That would be like, ‘okay, MIT paid for itself now,”” Spanjers said.
Billionaire investor Ray Dalio said he would rather own bitcoin than bonds in an interview aired on Monday at the Consensus by CoinDesk 2021 convention.
The Bridgewater Associates founder reiterated his view that the US dollar is on the verge of a devaluation, and he suggested that bitcoin could be an attractive savings vehicle in an inflationary scenario.
“The more we create savings in it, the more you might say, ‘I’d rather have bitcoin than the bond,'” Dalio said. “Personally, I’d rather have bitcoin than a bond.”
The billionaire investor has been bearish on bonds for quite some time, saying that the financial instruments pay less than inflation.
“I have some bitcoin,” Dalio also said during the interview, which was recorded on May 6. The investor didn’t say how much he owned.
He added that bitcoin’s greatest risk is its success. If it becomes a larger asset class and starts to pose a real threat to others like bonds, that could prompt a regulatory crackdown that could hinder the cryptocurrency. He said right now, bitcoin isn’t a true threat because it’s still small relative to other assets. The total value of bitcoin is slightly over $1 trillion, while the value of US bonds is about $23 trillion, according to Dalio.
Fears of rising inflation came to a head on Wednesday when key data came in significantly higher than economists expected. Bitcoin, touted by some of its biggest supporters as an inflation hedge – because it has a finite supply, unlike the dollar – didn’t rise in response. It instead slumped around 7% on the day.
Headline inflation data as measured by the Consumer Price Index rose 4.2% year-over-year in April, the fastest rate since 2008, while core inflation rose 0.9% in the largest monthly increase for the core index since 1982. The Dow shed nearly 700 points Wednesday.
Meanwhile, alleged inflation hedge bitcoin dropped below $50,000 to its lowest level in nearly three weeks.
The day that inflation fears hit a boiling point would have been bitcoin’s time to shine as the hedge against devalued, government-backed money its supporters claim it to be. With its fixed supply of 21 million bitcoin, the cryptocurrency is meant to protect against reckless central bank policy and helicopter money distributed by governments during the pandemic.
But as inflation concerns built in the weeks leading to Wednesday’s crescendo, bitcoin was unable to break out past new records. It has slumped 24% in the last month, and Elon Musk’s tweet about its environmental impact following the inflation print didn’t help.
The world’s most popular cryptocurrency may not be the hedge it is claimed to be, and its sensitivities to everything from local restrictions on bitcoin mining to Elon Musk’s latest tweets show that the coin is really treated by market participants as a risk asset and a vehicle for speculation.
Still, some bull are steadfast that bitcoin will get its day in the sun as inflation rises.
Dan Held, head of growth at cryptocurrency exchange Kraken, doesn’t think bitcoin’s recent price movements indicate it’s not a good inflation hedge, and said it’s developed a floor at the current price of $45,000-$50,000.
“I don’t think there was one singular catalyst that would either have pushed bitcoin up or down that’s inflation related,” he told Insider. “Bitcoin moved so intensely upwards earlier this year, this was sort of a bitcoin catching its breath before another big leg up.”
Held said bitcoin is still undervalued as an inflation hedge, especially considering that at a $1 trillion market capitalization, its much smaller than other assets that are traditionally seen as inflation hedges like gold and real estate.
Bitcoin’s fall below a key technical level as investors pivot towards other cryptocurrencies means it could be on track for a sharp slide to $40,000, according to the chief executive of crypto derivatives exchange Delta.
Pankaj Balani told Insider bitcoin’s fall was down to lower interest in the wake of crypto exchange Coinbase’s direct listing; investors chasing quick gains by piling into tokens such as dogecoin and a broader sell-off in risky assets.
He said bitcoin’s fall below its 50-day moving average – which is around $56,000 – could trigger a further decline. Bitcoin stood at $55,870 on Tuesday, around 14% off an all-time high of near $65,000 touched in April.
The 50-day moving average is a key psychological level that is closely watched by investors, Balani said. He said it is also used by some algorithmic traders as a point at which to sell.
Balani said bitcoin could fall to as low as $40,000, which is another important psychological level at which investors should start buying back in.
“The short-term momentum has been lost. So it wouldn’t be surprising to revisit the $40-$42,000 kind of zone. That is where we might find very strong support,” Balani said.
“That is the level where Elon Musk came into bitcoin,” Balani said, referring to Tesla’s purchase. “And that’s kind of become a base level.” Balani said derivatives contracts – which allow people to bet on price rises without actually owning bitcoin – indicated there was strong support at this price.
The Delta Exchange boss said the rotation into other tokens such as ether and dogecoin was a worrying sign for bitcoin and the cryptocurrency market as a whole.
“This is not sticky capital. This is people coming in and chasing quick gains,” he said. Balani said a similar dynamic was seen during bitcoin’s last peak in early 2018: “It’s a blow-off top. And that typically happens at the short-term top of the market.”
Analysts at investment research firm Vanda made a similar point on Monday. “When the rally started to look tired in November , investors rotated to lesser-known altcoins like Ripple and Ethereum,” Ben Onatibia, Vanda Research’s head of markets, wrote.
“In the months that followed, cryptocurrencies cratered as retail investors rushed to the exit.”
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.
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.
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
Bitcoin’s record-breaking rally to a $1 trillion market capitalization on Friday has increased the buzz around cryptocurrencies. Debates on whether these are worthy investments have flourished among investors, analysts, and the public.
Despite critics arguing against the legitimacy of these assets, a new study reveals that cryptocurrencies are viewed as safe investments by 50% of Americans. Additionally, 41% of those surveyed said investing in the stock market and cryptocurrencies are equally risky investments.
Conducted by Piplsay, a global consumer research platform, the study surveyed over 30,000 people in February on their views on digital currencies.
“The crypto bull run has seized the attention of millions of people who previously had never considered digital currencies like Bitcoin to be an alternative asset,” said Pavel Matveev, CEO of Wirex, a digital payments platform. “Bitcoin and other currencies are intended to have several uses, not least ease of exchange, purchase, and liquidity.”
The survey also revealed that 57% of Americans think major companies should start accepting cryptocurrencies as payments. In a separate survey of 1,050 Americans conducted by DealAid, 50% of investors said they would be willing to pay for products using bitcoin.
Critics however are quick to argue that the volatility of cryptocurrencies makes them poor medium of exchange.
“If you bought a $50,000 Tesla with four bitcoins on October 1st, that purchase now has an opportunity cost of $212,000, because bitcoin’s dollar price has risen from $10,000 to $53,000 in those four and a half months,” said Robert Minter, Director of Investment Strategy, Aberdeen Standard Investments. “That type of volatility is unsuitable for transacting in an economy.”
“Bitcoin’s market cap hitting $1 trillion demonstrates the mainstreaming of cryptocurrency as a store of value,” said Adam Liposky, Ecosystem Operations Lead at Pocket Network, a blockchain data ecosystem for Web3 applications. “We expect that Bitcoin is only the first of many $1TR market caps that we’ll see in the blockchain economy.”
Enthusiasts argue bitcoin may exist solely as a form of value akin to “digital gold,” while other forms of digital currencies will emerge as forms of payment.
Mike Venuto told Insider he doubts “we will ever buy coffee with bitcoin.”
“This excitement obscures the reality of the original bitcoin thesis of decentralization, replacing the trusted third party and banking the unbanked,” Venuto, who manages an approximately $1 billion ETF, said. “The focus now seems to be the store of value argument from the limited supply.”
Elon Musk defended Tesla’s $1.5 billion bitcoin bet after the CEO of major cryptocurrency exchange Binance called out the billionaire’s support for meme-based token Dogecoin.
“Having some Bitcoin, which is simply a less dumb form of liquidity than cash, is adventurous enough for an S&P500 company,” Musk tweeted in response to a Bloomberg interview with Binance CEO Changpeng Zhao.
Tesla made its biggest bitcoin endorsement yet by announcing not just its significant investment, but also that it plans to adopt the digital asset as a form of payment for its products.
In the interview, Zhao said he was surprised that Musk is a Dogecoin advocate, given that it was created as a joke. Musk has fired off several tweets about the Shiba Inu-themed token, sparking a surge in its price. Last week, he said he bought some for his 9-month-old son.
“I strongly believe that he’s not really associated with Dogecoin in any way,” Zhao said of Musk, noting that Tesla’s bet was on bitcoin, and not on the “joke” asset. But Binance has added Dogecoin futures recently based on consumer demand. That’s because it’s gaining popularity for reasons nobody expected, Zhao said.
Zhao’s comments elicited a response from Musk, in which he explained the reason behind Tesla’s move.
“When fiat currency has negative real interest, only a fool wouldn’t look elsewhere,” Musk tweeted. “Bitcoin is almost as bs as fiat money. The key word is “almost”.”
Other Wall Street names seem to be embracing bitcoin too, driving the token’s price higher to an all-time high above $52,000. As bitcoin surges to record highs, Zhao said Binance is seeing more than 300,000 new user registrations on a daily basis. The exchange last saw such remarkable levels during bitcoin’s 2017 boom, but volumes are even higher now.
“There’s a lot more activity now in this industry than three years ago,” said Zhao. “We are just at the beginning.”
Bitcoin’s rally extended on Friday as it rose 2% to trade around $52,740 as of 9:40 a.m GMT.
A Bank of America fund manager survey reveals that a significant number of investors believe bitcoin is the most crowded investment trade.
In a January survey of portfolio managers, strategists, and chief investment officers who together manage over $561 billion, 36% of investors surveyed said bitcoin is the most crowded trade. “Long tech” had previously held that title since October 2019.
The survey emphasizes the extreme bullishness around the cryptocurrency as it soars past new records and attracts new investors from the retail and institutional sides of the market.
The last time bitcoin was deemed the most crowded trade was in December 2017, when it peaked at $20,000 but spiraled downward in the following year.