- Some of the world’s biggest names in the hedge fund industry are doubling down on their cryptocurrency bets and now others are following suit.
- Larger trading volumes are needed to allow hedge funds to buy and sell without necessarily affecting the price and as cryptocurrency trading liquidity increases, it allows hedge funds to place larger bets.
Some of the world’s biggest names in the hedge fund industry are doubling down on their cryptocurrency bets and now others are following suit.
While Brevan Howard Asset Management and Paul Tudor Jones, the billionaire who runs Tudor Investment, were early adopters of cryptocurrency trading, they are now looking to expand their activities.
In January this year, Brevan Howard launched a cryptocurrency hedge fund that will now begin accepting outside investors, with the fund deploying multiple strategies, including directional bets on Bitcoin, Ether and other digital tokens, while also looking to arbitrage between tokens.
Brevan Howard’s cryptocurrency division BH Digital, created last September, already manages over US$250 million and has 12 portfolio managers, while Howard himself was an early investor in cryptocurrencies, blockchain and token-related businesses.
Early Bitcoin advocate Paul Tudor Jones has also been increasing his stake in Bitcoin, expanding that reach to other cryptocurrencies to hedge against rising inflation.
Howard and Tudor Jones may be the earlier high-profile names to have thrown their hat in the cryptocurrency ring but there are signs that Wall Street is warming up to the space as it continues to grow and provide sufficient critical mass for trading.
There is however a major difference between cryptocurrency trading and traditional activities in stocks or other commodities – most hedge funds are avoiding shorting cryptocurrencies, on concerns that they may shoot up in price suddenly, leading to large, crystalized losses.
Because the cryptocurrency space is led by retail traders and investors, the lesson of Melvin Capital which nursed massive losses after shorting the stock of GameStop (+2.12%) and triggering the meme stock craze will necessarily force hedge funds to be more cautious when it comes to short positions.
Most hedge funds for now have focused on buying tokens and trading futures and Coinbase Global (+10.48%), the largest U.S. cryptocurrency exchange claims that institutional investors as a whole traded US$1.14 trillion in cryptocurrencies last year, up almost 10 times from the US$120 billion the year before.
Larger trading volumes are needed to allow hedge funds to buy and sell without necessarily affecting the price and as cryptocurrency trading liquidity increases, it allows hedge funds to place larger bets.
