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Why the Number of Hedge Funds Active on the Crypto Market is Increasing

According to Francesco Filia, CEO of Fasanara Capital, cryptocurrencies often boost the performance potential of traditional hedge funds due to their volatility and inefficiency. The combination of these two characteristics allows traditional asset classes to outperform each other, she said. Fasanara Capital has more than $1 trillion worth of hedge fund assets, most of which invested in cryptocurrencies.

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Strong price fluctuations in digital assets in August catapulted traditional hedge funds to new heights. Not only did they achieve a 24% increase in turnover, but they also outperformed crypto investors.

If you want to find why more and more hedge funds are active on the crypto market and to be the first to find the most important business headlines in the world, download for free our companion app Born2Invest.

What was the trigger for the gains?

According to the data, the focus on bitcoin and other digital assets alone boosted hedge fund turnover by nearly 145% in 2021.

Crypto is only a small part of the equation. Some hedge funds also focused on commodities, bonds, and other digital assets to boost their revenues.

However, the high returns of cryptocurrency have caught the attention of many traditional hedge funds, which are now taking timid steps to become active in crypto.

Crypto’s volatility has wide appeal

According to Francesco Filia, CEO of Fasanara Capital, cryptocurrencies often boost the performance potential of traditional hedge funds due to their volatility and inefficiency.

The combination of these two characteristics allows traditional asset classes to outperform each other, she said. Fasanara Capital has more than $1 trillion worth of hedge fund assets, most of which are invested in cryptocurrencies.

The bitcoin price drops in June took a toll on crypto funds. Nevertheless, they gained over 200% in 2020, which was a record year for bitcoin enthusiasts.

According to recent data, hedge funds that focus on currency trading posted gains of up to 0.59% in August. Those that trade stocks made 0.8%.

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So far, Bitcoin – the digital currency most commonly used by crypto funds – has experienced sharp price fluctuations. At the beginning of the year, Bitcoin was trading at $29,000. In May, it rose to $63,000 before recently falling below $30,000.

Currency and stock markets remain quiet

However, the recent Bitcoin price drops are a blessing in disguise. Most traders are now betting more heavily on digital currency. On the other hand, the currency and stock markets are quiet – even as low-interest rates on major currencies stifle big price moves in other parts of the world.

Surprisingly, big price swings in digital currencies have prompted hedge funds to jump on the crypto bandwagon. And most of them are looking to become even more active as investors.

One example is Brevan Howard – one of the largest macro hedge funds in the world. In a statement, plans were announced to create a digital company to explore more crypto opportunities in the future.

It’s funny how two years ago hedge funds wanted nothing to do with cryptocurrencies. Now the fear of missing out is real. They are even more afraid of criticism from existing investors.

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(Featured image by sergeitokmakov via Pixabay)

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First published in CRYPTO MONDAY, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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Suzanne Mitchell juggles the busy life of a full-time mom and entrepreneur while also being a writer-at-large for several business publications. Her work mostly covers the financial sector, including traditional and alternative investing. She shares reports and analyses on the real estate, fintech and cryptocurrency markets. She also likes to write about the health and biotech industry, in particular its intersection with clean water and cannabis. It is one of her goals to always share things of interest to women who want to make their mark in the world.