The August large price swings in digital assets skyrocketed traditional hedge funds to new heights. They not only gained 24% in sales but also outdid crypto investors.
So, what triggered the steep gains?
According to data, the sole focus on Bitcoin and other digital assets increased hedge funds sales to nearly 145% in 2021.
Crypto is only a small part of the equation. Some hedge funds also concentrated on commodities, bonds, and other more established digital assets to boost their sales.
However, great returns in the cryptocurrency have caught the eye of many traditional hedge funds — which are now making shy steps toward becoming active in crypto.
Crypto volatility is a great attraction
According to Fasanara Capital CEO, Francesco Filia, cryptocurrencies often boost traditional hedge fund’s performance potential through their volatility and inefficiency.
The combination of these two features allows traditional asset classes to outperform each other, he said. Fasanara Capital has over $1 trillion worth of hedge fund assets, and most of it is distributed in cryptocurrencies.
Bitcoin price dips in June made crypto funds too uncomfortable. However, they gained over 200% in 2020, which was a bumper year for Bitcoin enthusiasts.
According to recent data, hedge funds concentrating on currency trading experienced gains of up to 0.59% in August. Those trading equities had 0.8% gains.
So far, Bitcoin — the most widely used digital currency by crypto funds — has plummeted wildly in value. Early this year, Bitcoin was trading around $29,000. In May, it soared to $63,000 before recently plunging below $30,000.
Currency and equity markets remain silent
But the latest Bitcoin price dips are a blessing in disguise. Most traders are now placing more bets on digital currency.
On the other hand, currency and equity markets are quiet — even as low-interest rates on major currencies are stifling large price moves in other parts of the world.
Surprisingly, large digital currency moves have attracted hedge funds to jump on the crypto bandwagon. And most are aiming to become even more active than investors.
A case in point is Brevan Howard — one of the world’s largest macro hedge funds. Through a statement, they said plans are underway for the global hedge fund to set up a digital business to explore more crypto opportunities in the future.
It’s funny that two years ago hedge funds wanted nothing to do with crypto. Now, the fear of missing out is real. They’re even more afraid of criticism from existing investors.
