It's been a rollercoaster few years for crypto investors. Yet hedge funds see the return of riskier, rockier markets as a prime opportunity to pile in.
"Until last year I was highly sceptical of most things associated with Blockchain ,which I understood to be nothing more than a database, and sceptical of crypto which seemed to be a space occupied by whales and teenagers," he said. "I'm not alone now in recognising its revolutionary potential ... the short to medium term investment opportunities are tremendous." He added cryptocurrencies offer "a great investment opportunity that has not yet been recognised".
The sky-high returns resulting from the pandemic-fuelled turmoil across almost every asset class over the past few months has lured hedge funds into making volatile digital bets. Among them is macro hedge fund manager Paul Tudor Jones, who told CNBC last week that almost 2% of his assets were in Bitcoin. And Renaissance Technologies, the $75bn quantitative hedge fund, said it was considering investing in Bitcoin futures. Some have proved cryptocurrency trading can be a winning strategy. Altana Digital Currency fund, the London-based crypto arm of Australian hedge fund manager Lee Robinson's Altana Investments, was up 1,500% in 2017 and is up 14% in 2020, according to a source familiar with the situation.
"More leading systematic and macro traders are treating crypto as a new tradable asset class because that's where the liquidity is right now," Oliver Fochler, chief executive of hedge fund adviser Stone Mountain Capital, told Financial News. "The increased volatility we have seen has boosted the crypto sector, both in terms of new crypto fund launches and new players coming into the market."
Smaller players want in, too. YRD Capital – a digital asset quantitative fund that has returned more than 20% since it's 2017 debut – last week said that it was primarily focused on UK and European markets, with co-founder Yuval Reisman re-locating to London. Parataxis Capital, a crypto hedge fund set up by former Credit Suisse banker Edward Chin and Thaijas Naval who spent nearly a decade as a macro trader at Goldman Sachs, will begin trading in New York this summer.
Fintech company Aaro Capital, formed in 2018, last week launched the Aaro DLT Multifund, a fund of funds seeking to profit from cryptoassets and Blockchain-related technologies. "There was an over-expectation in the early days," Aaro Capital partner Johannes Gugl told Financial News. "The cryptocurrency base is [now] much more strengthened, and more banks and fund managers are now going into the space. A lot of crypto companies have to prove themselves that they can help force the increase in demand of digitalisation." Gugl said there will be a thought leadership component to Aaro's cryto hedge fund, comprising research papers and webinars to supply a "source for education about the value add of the distributed ledger technology and crypto assets. We recognise that people are still not educated enough about the cryptocurrency and blockchain space."
The crypto scene evokes the industry's glory days, he said: "When I'm talking with hedge fund managers, they often feel like the crypto space is what the hedge fund industry was 20 years ago, with high returns and a lot of opportunities which don't exist in the traditional hedge fund space anymore."
"Crypto is beginning to trade independently of other assets," wrote Dan Morehead, CEO of Pantera Capital, America's first Bitcoin hedge fund, in an April 2020 investor note reviewed by Financial News. "Crypto is up while most asset classes are down ... would you rather have your savings in the Lehman Brothers of 2020 – or a token you control?"