What is the Bitcoin strategy of hedge funds in terms of risk and potential?

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Cryptocurrencies have carved out a place in many people’s portfolios, and their popularity will only grow over time. In fact, it is expected that by 2026, hedge fund executives will hold an average of 7.2% of their assets in cryptocurrencies.

This was recommended by a poll conducted by fund administrator Intertrust, in which 100 hedge funds from across the world participated. If the aforementioned statistics are applied throughout the sector, the total amount of crypto assets would be $312 billion.

Hedge funds have been heavily involved with cryptocurrency for some time, and according to the poll, 17 percent of respondents anticipate to have more than 10% invested in cryptocurrency. This amount already reflects a significant demand among hedge funds in the business. In reality, such an increase has also coincided with the widespread acceptance of Bitcoin.

Prominent hedge fund manager Paul Tudor Jones bought into Bitcoin, while Brevan Howard was seen moving small portions of his funds into crypto too. Jones had previously recommended investors allocate 5% in Bitcoin in an interview with CNBC after taking a huge swipe at the Federal Reserve for suggesting higher inflation was temporary.

“I say OK, listen. The only thing that I know for certain is I want to have 5% in gold, 5% in Bitcoin, 5% in cash, 5% in commodities at this point in time.”

However, while market confidence has recently increased, hedge funds have remained cautious. In reality, according to the poll, investors have only invested a small portion of their assets in cryptocurrency. Morgan Stanley and Oliver Wyman, for example, stated in a recent study,

“For the moment, crypto investments remain limited to clients that have a high risk tolerance and, even then, investments are typically a low proportion of investable assets.”

David Miller, Executive Director at Quilter Cheviot Investment Management, added,

“Hedge funds are well aware not only of the risks but also the long-term potential of cryptos.”

This apprehension among hedge funds and even institutions arises from the cryptocurrency market’s volatility and a lack of rules. The future of crypto regulations is unknown, although the Basel Committee on Banking Supervision has stated that they should be subject to the strictest bank capital standards of any asset.

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