Digital currency’s market share has reached nearly $170 bln this year, and that figure puts them out there as a major asset. In fact, Bitcoin alone has outshone PayPal in recent months.
However, despite the huge amount of money flowing into this market, and the seemingly mainstream interest springing up globally, the thought is that traditional big money investors have not quite entered the market yet.
Institutional investors are steering clear of the nascent market, taking the view that it is too lightly regulated, too volatile and too illiquid to risk investing other people’s money in.
Hedge fund options
Because digital currencies are such a new and unprecedented investment opportunity, it was believed that the lack of traditional investment avenues was holding back the big money. However, with hedge funds sprouting at the rate of two a week, there is little excuse.
According to Autonomous NEXT, a financial technology research house, 84 crypto hedge funds have been launched this year, taking the total to 110 with about $2.2 bln in assets altogether.
However, the funds, in general, are quite small, and with a limited track record coupled with volatile cryptocurrency price swings, seems to have kept pension funds, insurance companies and large mutual funds are staying away.
“While cryptocurrencies are probably here to stay, they are difficult to analyze, wildly volatile and some may be prone to fraud,” said Trevor Greetham at Royal London Asset Management (RLAM), part of the Royal London life insurance company.
Autonomous NEXT partner Lex Sokolin said there were probably only a couple of funds worth several hundred million dollars with most in the $5 mln to $20 mln range – well below the threshold most institutional investors would consider.
“For many institutional, discretionary fund managers, those funds wouldn’t get cleared because the big question would be around liquidity,” said James Butterfill, head of investment strategy at ETF Securities in London.
Core business concerns
There is another way for these mainstream money managers to be a part of the cryptocurrency world, and that is through investing in a basket of hedge funds that includes a crypto fund. But the head of hedge funds at a major European bank that invests in more than 100 hedge funds said there were no crypto funds in his portfolio.
“It’s a very controversial proposition,” said the banker, who declined to be named. “It’s unlikely that the most established hedge funds will make big bets on this because you could put your core business at risk.”