Today’s Cryptocurrency Trusts and Hedge Funds Amid the Financial Crisis


On July 22, 2020, the United States Office of the Comptroller of the Currency issued a letter clarifying that national banks and federal savings associations can effectively take custody of cryptocurrency assets. In the letter, Bitcoin was also recognized as “the first widely adopted cryptocurrency”. On the same date, VISA, one of the largest payment companies with access to more than 61 million merchants worldwide, revealed its intention to offer Bitcoin (BTC), Ether (ETH) and XRP payments.

These steps towards general acceptance come at a fortuitous but painful time for the global economy. Unprecedented quantitative easing, fiscal stimulus and private bailouts have all returned in a much larger form than they existed in 2008. This time, however, they have all come in response to the crisis of the COVID- pandemic. 19. The Federal Reserve and central banks around the world are responding to the current financial crisis with trillions of new currency units, resulting in billions more in existing government debt. A sudden and exponential increase in a country’s money supply usually leads to high levels of inflation and, eventually, a massive devaluation of the currency. And in these situations, a cryptocurrency like BTC, which has a fixed number of units, mathematically guaranteed, holds a unique inflation-proof value for investors.

One of these investors, Paul Tudor Jones, a revered hedge fund manager, holds around 2% of his assets in BTC. He sees Bitcoin as a hedge against inflation and the central bank’s rampant currency creation, likening the digital asset to gold in the financially troubled 1970s.

Mike Novogratz, president and CEO of Galaxy Digital – a diversified financial services company focused on the digital assets, cryptocurrency and blockchain technology industry – also sees the current financial crisis as an “incredible environment” for Bitcoin. On April 2, Novogratz told CNBC that he saw hedge funds and high net worth investors buy Bitcoin for the first time. Positive sentiment was already on the rise in 2019, with the price of Bitcoin nearly doubling, outperforming traditional investments including gold and the S&P 500. The current crisis has accentuated this trend.

In the midst of this economic downturn, Grayscale Investments announced the best quarter in its history. Investments, 88% of which are from institutional investors, reached an all-time high for Grayscale’s digital investment products, including Grayscale Bitcoin Trust, in the first quarter of 2020. The company has $ 2.2 billion in assets. under management. Total investments in Grayscale crypto products in the first quarter of 2020 amounted to $ 503.7 million, compared to around $ 1.07 billion per month in the past 12 months.

Cryptocurrency hedge fund assets under management more than doubled in 2019, rising to more than $ 2 billion at the end of last year, according to a survey released on May 11 by the Big Four audit firm PricewaterhouseCoopers and Elwood Asset Management Services published. Based on data from the world’s largest crypto hedge funds by assets under management, including crypto index funds and crypto venture capital funds, the crypto hedge fund industry is expected to grow significantly along with the price of Bitcoin. According to the report:

“Our Q1 2020 study shows that there are around 150 active crypto hedge funds. Almost two-thirds of them (63%) were launched in 2018 or 2019. Average assets under management increased from US $ 21.9 million to US $ 44 million. “

Of the hedge funds surveyed, 97% traded BTC, Ether at 67%, XRP at 38%, Litecoin (LTC) at 38%, Bitcoin Cash (BCH) at 31% and EOS at 25%. The substantial increase in AUM can be attributed to the increase in the prices of cryptocurrencies.

PwC partner and global crypto leader Henri Arslanian was quoted by Bloomberg:

“I expect the crypto hedge fund industry to grow significantly over the next several years, as investing in a crypto fund can be the easiest and most familiar entry point for many institutional investors who wish to enter this space. “

Hester Peirce, commissioner of the US Securities and Exchange Commission, is also seeing increased institutional demand. She confidently said that she “sees more interest from institutions than we have had in the past. I think this will continue … as people look to diversify their portfolios, I think people are also likely to look more to the crypto space.

In conclusion, the crypto hedge fund space has proven, through its growth, resilience and performance, to be a significant investment opportunity. The PwC report, along with the competing opinions of several well-known finance figures, is further proof of this. In the current context of economic uncertainty, crypto hedge funds offer an easy access point to this safe haven for institutional investors. What’s most exciting, however, is that this is just the beginning.

The views, thoughts and opinions expressed herein are the sole ones of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Elvina Kamalova is Chief Investment Officer at Aludra Capital – a San Francisco-based digital asset investment management firm. Aludra Capital is a digital asset platform of private equity firm Industry Capital. Elvina has experience in digital asset investments, portfolio management and fintech product development. She is the recipient of the President’s Volunteer Service Award from former President Barack Obama.


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