Bitcoin Dominance Is Making Investors Rich, Thanks to Crypto Hedge Funds
Credit: Hans Eiskonen on Unsplash
National economies are sinking into a recession but the bitcoin economy remains healthy and is still growing throughout the coronavirus crisis, even surging to $10,000 on May 7.
Crypto hedge funds, in particular, are reaping the benefits of volatility. For example, Eric Ervin, co-founder of Blockforce Capital in San Diego, said his fund’s returns are up 18% so far in 2020.
“In these wild months, we’re capturing half of the upside,” Ervin said, referring to the economic rollercoaster that took off in March. “Bitcoin’s really taken a lot of market share back from Ethereum … really dominated as Ethereum tries to figure itself out.”
It’s important to note bitcoin’s market dominance during a global crisis is a cause of correlation, not causation. The godfather cryptocurrency was already surging in 2019. According to the annual report released Monday by Elwood Asset Management and the consulting company PricewaterhouseCoopers (PwC), the value of assets under management at crypto hedge funds more than doubled in 2019 to reach $2 billion.
According to PwC partner Henri Arslanian, co-author of the report that surveyed over 50 funds, more crypto hedge funds trade ether (ETH), 67%, than any type of crypto derivatives (56%), although bitcoin still reigned supreme in 2019 (97%).
Arslanian said the coronavirus crisis inspired more investors to adamantly ask how hedge fund managers reduce counterparty risks, for example, not leaving too much money on any single exchange. If these concerns are quelled, more investors appear eager to enter the market, he said.
The vast majority of these funds serve family offices and high-net-worth individuals, an average of 28 individuals per fund, suggesting the technology’s leading use case isn’t “financial inclusion” quite yet. (Many of these funds alone represent more global market share than the known peer-to-peer bitcoin trading volumes of some countries.)
This is why bitcoin appears to be correlated to traditional assets like stocks. When the same small groups own significant chunks of multiple markets, their behavior influences those markets in similar ways. Diversifying ownership is the only way to decorrelate an asset class. In the meantime, traders and investors are making a killing.
The PwC report found the percentage of crypto hedge funds with more than $20 million under management jumped up from 19% to 35% of surveyed funds – shocking growth considering the median starting point for these funds was $2 million.
“We’re starting to notice people are taking our calls a little bit more. There’s a little more interest,” Blockforce Capital’s Ervin said.
Plus, the market shocks in March didn’t feel like an emergency to veteran bitcoin traders.
Paul Veradittakit, co-founder of crypto investment firm Pantera Capital, agreed, saying his fund spent a lot of time so far in 2020 educating nervous investors.
“We wanted to make sure the investors knew what was going on in the market,” Veradittakit said. “We’re rebalancing a bit more into bitcoin to focus on what we think will be the rallying point for crypto during this time.”
Although the venture arm of Pantera is now focused on fewer startups and ensuring those investments have at least 18 months of runway, Veradittakit said overall 2020 has seen the fund’s largest amount of deployed capital to date. A few funds, including Scalar Capital and Polychain Capital, declined to offer comment on their updated strategies by press time.
“[Black Thursday] wasn’t that uncharacteristic of bitcoin, historically,” Ervin said, adding the same concept applies to ETH, which outperformed bitcoin in some previous years.
“[Big business] has embraced Ethereum, and that’s meaningful,” Ervin said. “There’s a significant amount of resources dedicated to Ethereum.”
That’s why the competition is more crowded than ever before. The PwC report tallied at least 150 active crypto hedge funds, more than 63% of which were launched in the past two years. All things considered, PwC’s Arslanian said he expects investors to learn about the market through institutions and eventually bring some of that trading activity in-house.
“We’re in the early stages of the crypto hedge fund industry. The crypto hedge fund industry today is where the traditional hedge fund industry was in the 1990s,” Arslanian said.
Author: Zack Voell
BdB: Need harmonization in the fight against money laundering | 07.05.20
By Andrea Thomas
BERLIN (Dow Jones) – The banking association (BdB) is pushing for international cooperation in the fight against money laundering. "More legal harmonization and more tailored cooperation are crucial parameters for a successful fight against money laundering in Europe," said Andreas Krautscheid, chief executive of the banking association, on the occasion of the European Union's action plan to combat money laundering, which was presented on Thursday. "In particular, harmonization of standards for customer identification is required."
The European Commission had previously announced that it would create its own European supervisory authority to combat money laundering and terrorist financing. Krautscheid said that only if the standards for customer identification were harmonized could cross-border account opening be followed uniformly. A stronger exchange between supervisory and law enforcement agencies and the financial sector is also needed if a successful fight against money laundering is to be achieved.
For the banking association, care must now be taken to ensure that this new "watchdog" authority at EU level does justice to this. "Because only a pure shift of competence to Europe would not do justice to the challenges," said Krautscheid.
Contact the author: [email protected]
DJG / aat / cbr
(END) Dow Jones Newswires
May 07, 2020 10:19 ET (14:19 GMT)
Is China’s anti-crypto state media…bullish for the Bitcoin halving?
A Chinese state-owned broadcaster published an article Sunday about Bitcoin’s upcoming halving—a strange move for a country whose media has been so intent on bashing Bitcoin.
The article, by China Central Television—a state-owned television network in China—spoke of the “skyrocketing [price] of Bitcoin” ahead of the halving and pointed out that legendary hedge fund manager, Paul Tudor Jones, had proclaimed to his investors the benefits of the cryptocurrency.
The article added that analysts believe the Bitcoin halving, which is forecasted to take place on Tuesday, “will be a positive signal for Bitcoin” and the “price should rise.” It mentioned that the price of Bitcoin had risen following previous halvings.
This is very strange. The Chinese government, through its state-owned media, has previously called cryptocurrencies an “illegal Ponzi scheme.” The government has also prevented exchanges from selling Bitcoin within its borders since 2017. Why on Earth would it comment on Bitcoin’s price?
The publication of the article was raised on Twitter by “Molly”, who heads marketing at Hong Kong crypto management platform HashKey Hub. She said in a tweet that this was the first time she had seen Chinese national media talking about a “Bitcoin pump.”
She added (in a since-deleted tweet) that the price of Bitcoin appeared to go up by 1.5% following the publication of the article—though such speculation is perhaps better left to the mystics; in the past 24 hours alone, Bitcoin’s price crashed by 15% before making a slight recovery.
Blockchain not Bitcoin
Though China might hate cryptocurrencies, it has embraced blockchain technology wholeheartedly. The president, Xi Jinping, even said in a speech in October 2019 that blockchain is crucial to the development of the country.
The government has started its own state-owned blockchain network (one of many projects and pilots) and leads global rankings for blockchain patent applications.
And it has begun the rollout of its own state-rolled digital currency, the DCEP. Bitcoin, a truly decentralized cryptocurrency, is clearly on its radar.
Author: Decrypt / Robert Stevens
Bitcoin Halving: Is Now When To Buy Bitcoin?
Bitcoin is on the cusp of a supply squeeze, known as a halving—something that happens roughly once every four years.
But what will the bitcoin halving mean for the bitcoin price and should investors buy bitcoin now?
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The bitcoin price has bounced around below $10,000 per bitcoin over the last week. Some are worried … [+] bitcoin could be heading for a cliff edge after the halving.
Later today, expected around 5pm EDT, the number of bitcoin rewarded to those that maintain the bitcoin network, called miners, will be cut by half—dropping from 12.5 bitcoin to 6.25.
The effects of 2020 bitcoin halving, the first since bitcoin exploded onto the global stage as a result of its massive 2017 bull run, have been debated for years.
No one knows how the bitcoin price will react to the supply squeeze, though many in the bitcoin and cryptocurrency community are confident the bitcoin price will climb eventually.
But in the short term, the bitcoin market is widely-expected to be highly volatile.
“Through today we are likely to see increased volatility and tactical trading ahead of the halving,” Marcus Swanepoel, the chief executive of London-based bitcoin and crypto exchange Luno, said in a note.
Bitcoin has already seen an uptick in volatility in the run up to the halving over the last week.
After starting last week at under $9,000 per bitcoin, the bitcoin price rallied hard to over $10,000 before crashing back over the weekend.
“The move back down to $8,000 wasn’t a big surprise,” said Rich Rosenblum, co-head of trading at Hong Kong-based crypto market maker GSR, adding, “it’s likely that we’re going to see increased volatility through May, with the pandemic, ongoing stimulus measures and the halving.”
Bitcoin has been one of the best performing assets since the broad coronavirus market crash in March, with the bitcoin price more than doubling from lows of around $4,000.
Many bitcoin and cryptocurrency exchanges have reported surging user numbers and trading volume.
“Bitcoin has risen over 100% over the last few months and we believe most of that rise was driven by continued retail demand,” said Scott Freeman, co-founder of New Jersey-based bitcoin and crypto-focused institutional trading firm JST Capital.
“We expect continued volatility but expect to see good long term risk reward in bitcoin and also expect it to behave in an uncorrelated manner to traditional financial assets.”
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The bitcoin price, well known to be highly volatile, is expected to make wild swings after the … [+] coming halving before the market settles.
Meanwhile, the bitcoin and crypto community was rocked last week by news legendary macro investor Paul Tudor Jones is buying bitcoin as a hedge against the inflation he sees coming as a result of unprecedented coronavirus and lockdown-induced central bank money-printing.
In a letter to clients, Jones said it reminded him of the role gold played in the 1970s.
“We think this could be a seminal moment for bitcoin,” Freeman said in reaction to Jones’ letter, which can be read in full here.
“Given the COVID-19 crisis and the easy money policies of major central banks, real money and macro investors are increasingly concerned about the value of traditional financial assets,” Freeman said, adding, “we received several calls over the past week from institutional investors who now see bitcoin as a great hedge against the easy money policies and the looming global recession.”
Author: Billy Bambrough