Institutional Investors in Asia pivot towards Cryptocurrency Hedge FundsOctober 1, 2019
Institutional investors based in Asia, including high-net individual businesspersons and smaller family offices, are showing interest in crypto hedge funds. These signals are even coming en mass from those who are both as individuals and as a smaller financial organization, completely unfamiliar with cryptocurrencies. They are not jumping in with both feet but considering allocation small parts of their hedge portfolios into crypto assets.
While news about family offices going into crypto appeared before as well, this time it seems that in Asian nations, at least, the funds are actually buying into digital currencies. Now, with some of them making such allocation, analysts and industry experts believe that more are likely to follow. The implications of such development, if they are factual, could be important for the Asian crypto market, but global ones as well.
While so far the news appears to be factual, the same investors still face a huge number of problems like anywhere else in the world. These include the banking sector that is averse to crypto – to put it mildly – as well as numerous regulatory issues and possible huge pitfalls. But, some are deciding that the potential profits are worth it all and companies are cropping up to service that demand. This applies to BBShares.
This is a crypto hedge fund that is based in Hong Kong. It is currently mainly catering to institutional investors from the region and the continent. Right now, the firm is edging closer to reaching a committed capital worth over $10 million. This money did not come from esports players, crypto enthusiasts or anyone who would be a natural fit with the market. Instead, it came from family offices and high-net-worth businesspersons.
The traditional financial institutions, at the same time, remained on the sidelines. In the case of BBShares, their representative, Jett Li, who is the company’s chief investment officer, stated that his organization has a clear idea of why this suddenly came about in 2019. In his words, the moment the Facebook Libra project was announced and the bitcoin price small bull run began, the big investors began once again paying extra attention. Li claims that unlike before, the demand for efficient and secure institutional asset allocation into different cryptocurrencies is growing. Other firms in the region are echoing this sentiment.
Small Crypto Market
The growth in this market still does not change the fact that itself is still very small. For example, about five percent of all crypto funds in the world are located in Singapore. At the same time, 64 percent of these funds are located in the US. Yet, their design and functioning pretty much remain the same across the world, regardless of the market potential.
Instead, all of them carry a structure that is more or less similar to traditional hedge funds. With crypto as well, hedge funds are leveraging regular strategies including arbitrage and quantitative trading to generate above-market returns for their institutional investors. Now, however, all of them attained a level of the free advertising they could have never hoped for.
Crypto hedge funds almost universally report that the interest significantly picked up after Facebook made its formal Libra announcement. After that event in June, the hedge funds also started noticing that investors are more interested in their offer than just a couple of months ago. A year before that many were certain that the crypto market is on its deathbed as the full swing of the cryptocurrency bear market materialized.
Now, thanks to the free advertising from Facebook, the investors began circling back to crypto. The tech logic behind that is completely crooked, being that the same technology shares nothing with bitcoin, for example, apart from employing a blockchain network for its basic operations. Yet, for the public, crypto is crypto and this provided a level of unprecedented institutional validity to the entire playing field. For investors, this was a case needing to check of the same offer even if they previously might have been very opposed to cryptocurrencies as a concept.
Besides Facebook, there is another player important for the Asian crypto (or would-be crypto) market and that is none other than the People’s Bank of China or PBoC. Over the past couple of years, there have been numerous reports about the PBoC developing its own digital currency. The same would also, like Libra, be a form of stablecoin and one that is pegged to the yuan. However, it would likely also run a blockchain and use many other features of decentralized digital currency.
Investors found this very interesting as well because that would also end up being a huge incentive. In a strange way, whatever is even closely associated with blockchain and cryptocurrency, but also somehow connected to the traditional financial market – as both Facebook and China are – ends up being a promotion for crypto. The reason for this is simple: no one can today buy either Libra or PBoC token. Still, the investors very much want to buy something, sometimes even anything crypto-related.
The same narrative of getting any crypto token is the ultimate driver of investors, including institutional ones, towards cryptocurrencies. They all fear being the ones who miss out. Initially, in the first two major bull runs, the individual investors were the ones who were driving the profits.
Of course, scattered among them were small businesses, hedge funds, and even major business figures. But these were few and far between. While a big drop in the crypto market value followed these two, there was still that sense that either one will be able to smother the market completely. This did not happen.
Now, institutional players are fully aware of the ebb and flow of the market and have likely no doubt that it will fall drastically. However, the number of those who believe that it will all come crashing down is clearly growing smaller. They are ready for the risks because most know that a single upward swing will be able to make any investment more than worth their time.