A game-changing shift is underway as roughly half of U.S. and European asset managers are embracing digital asset custody. Despite regulatory concerns, many experts including CKC.Fund contend that institutional crypto markets are on the brink of a revolution.
In 2023, Reuters covered how hedge funds investing in the digital asset space enjoyed outsized capital inflows. Still, overall supply remained limited. PwC revealed that only 29% of traditional hedge fund managers invested in digital assets in 2023. The groups that did invest (primarily emerging crypto fund managers or those holding modest crypto positions), constituted only a small fraction compared to the trillions of dollars that hedge funds typically allocate to traditional assets.
Nonetheless, bitcoin (BTC) exhibited higher returns than major equity, treasury, real estate, and gold indices in 2023, while also displaying minimal correlation. This juxtaposition of strong demand, weak institutional adoption, and exceptional performance “signals a ripe opportunity for emerging crypto hedge fund managers to outperform traditional benchmarks,” as CKC.Fund Founder and Managing Director, David Doss, notes. So, how are organizations gearing up for this shift in the financial landscape?
Many institutional investors initially entered the crypto space through venture capital (VC) investments in digital assets and related sectors. Now, as the market matures, increasing numbers of savvy players are opting for more liquid and robust strategies. “Identifying the next promising crypto-focused opportunity has become increasingly challenging – a normal part of the maturation process for emerging assets and industries,” explains Delia Sabau, CKC.Fund’s Head of Portfolio and Risk Management.
Historically, after a surge in VC investments, hedge funds play a critical role in ongoing market analysis and portfolio rebalancing. Known for their liquidity compared to VCs, hedge funds offer strategies that may help navigate a wide range of risks that are often overwhelming for many investors and institutions to tackle on their own. In particular, the digital asset hedge fund market has exhibited strong returns and a dynamic liquidity profile. This can make it an appealing alternative in a landscape where many traditional asset classes are delivering diminishing returns.
With tens of thousands of crypto assets springing up, nimble hedge funds focusing on tokens beyond the top 50 tend to utilize thorough fundamental analysis to identify upcoming projects with the opportunity for high ROI, low correlation to other markets, and asymmetric upside potential. By exploring emerging and undercapitalized tokens while maintaining high-liquidity positions, such funds leverage their deep knowledge to strategically invest in promising digital assets.
With tens of thousands of crypto assets springing up, several smaller hedge fund managers such as CKC.Fund specialize in identifying high-potential tokens beyond the top 50, conducting thorough analysis to uncover upcoming projects that exhibit signs of high ROI, low correlation to other markets, and asymmetric upside potential. By exploring emerging and undercapitalized tokens while maintaining high-liquidity positions, such nimble emerging fund managers leverage their deep knowledge to strategically invest in promising digital assets – leveraging a competitive edge over established counterparts. They excel in this arena, capitalizing on market inefficiencies while maintaining agility in position management and a willingness to invest in smaller yet well-vetted digital assets often overlooked by larger, less agile funds.
Hong Kong’s upcoming exchange-traded funds (ETF) that invest directly into cryptocurrencies could be attractive to many Asian investors, industry insiders say, but demand may still be a trickle compared
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