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Cryptocurrencies continue to mature, as hedge funds bet big on the digital asset
- April 1, 2022: Vol. 9, Number 4

Cryptocurrencies continue to mature, as hedge funds bet big on the digital asset

by Mike Consol

An executive order signed by President Biden is directing his administration to review the government’s approach to cryptocurrencies, with the intent of ensuring the United States continues to play a leading role in the fast-growing $1.85 trillion business — while also protecting consumers from fraud and the overall U.S. financial system itself instability.

While there are some who believe a set of rules will help legitimize cryptocurrencies, others worry a layer of federal regulations could staunch crypto’s Johnny Appleseed ethos.

Bloomberg has suggested the Biden administration’s effort to establish a national crypto strategy has underscored a salient question: Should the Federal Reserve enter the fray by issuing a digital version of the national currency, as China and others have already done?

The news service goes on to reason there is no need to rush the decision because the digital-currency technology required to safeguard Americans’ privacy will take years to develop. Meanwhile, policymakers can do a lot to improve the payment system by other means.

Yet, Time magazine had a completely different take, arguing the United States is losing the global race to decide the future of money, and the delay could doom the U.S. dollar. The magazine reports: “In cities across China, the country’s central bank has begun rolling out the e-renminbi — an all-digital version of its paper currency that can be accessed and accepted by merchants and consumers without an internet connection, credit or even a bank account. … The U.S., by contrast, is having trouble even concluding its multi-year exploration into the possibility of an e-dollar. In fact, an upcoming Federal Reserve paper on a potential U.S. digital currency won’t take a position on whether the central bank of the United States will, or even should, create one.”

Meanwhile, The Wall Street Journal recently reported that some of the marquee names among hedge funds are increasing their commitments to cryptocurrencies. Firms founded by Alan Howard, co-founder of Brevan Howard Asset Management, and Paul Tudor Jones, the billionaire who runs Tudor Investment, are expanding their crypto trading.

Brevan Howard launched a cryptocurrency hedge fund in January that will begin accepting outside investors, according to The Journal. The fund is making bets on the direction of bitcoin, ether and other cryptocurrency prices, while also searching for arbitrage between currencies and investing in blockchain technology.

Jones, meanwhile, has been buying cryptocurrencies to try to protect against rising inflation.

Another hedge fund, the $15 billion New York City-based Hudson Bay Capital Management, has seen growing profits from trading cryptocurrencies, say The Journal, attributing the information to a person familiar with the situation.

Other large hedge funds are reportedly doing the same.

The embrace of crypto by more veteran hedge-fund traders — which are often wagering on the direction of a token’s price, much as they do with stocks — is the latest sign of Wall Street’s warming to digital currencies.

Robert Bogucki, co-head of global trading at Galaxy Digital Holdings, an early crypto investor, told The Journal: “More funds see crypto as a fifth asset class,” in addition to stocks, bonds, currencies and commodities. “It’s big enough now.”

 

Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser. Follow him on Twitter (@mikeconsol) and LinkedIn (linkedIn.com/in/mikeconsol) to read his latest postings.

 

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