At 196.7%, Bitcoin’s 10-year CAGR is unheard of. Without a doubt, the returns that investors in cryptocurrencies like Bitcoin have enjoyed have been record breaking. As the space becomes more regulated and investment-grade infrastructure is developed, hedge funds are starting to get in on the cryptocurrency boom.
Nearly a third of hedge fund managers plan on adding crypto to their portfolio in the near future, per a research survey by EY. Similarly, 13% of private equity firms and 24% of investors in alternative funds expressed interest in increasing or initiating cryptocurrency exposure over the same time period. In another study released by the Intertrust Group, a fund administrator based in the Netherlands, a survey of 100 hedge fund chief financial officers found that most execs believe up to 7.2% of a fund’s assets will be held in cryptocurrency. Throughout the financial industry, there is a general consensus that the crypto markets are rife with opportunity.
Regulatory clarity is expected to be a major factor in hedge funds’ willingness to invest in crypto. The current regulatory environment poses a hurdle for widespread crypto adoption, but as regulation settles in the crypto market, fund managers are expected to be more open with allocating capital in crypto.
Another key tailwind for the shift towards crypto is the building of investment-grade infrastructure. More established exchanges, security systems, and custody solutions are encouraging hedge fund investors to become more active participants in the crypto space. Innovative technologies in this space will be a key driver for traditional financial institutions to adopt crypto.
With many solved issues in regulation, compliance, and risk management, it may be a while until crypto is as widely accepted as other alternative assets. But hedge fund managers are starting to see the opportunity in the crypto markets, and their gradual adoption of cryptocurrencies marks a paradigm shift in the space.
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