Hedge funds see the crypto market decline as an investment opportunity

Crypto market capitalization is down more than 40% since its $2.5-trillion high back in early May, but institutional investors continue to pile into the market. Despite Bitcoin (BTC) losing over half of its United States dollar value and altcoins tanking almost 70% on average, big-money players like hedge funds are still taking up digital currency investment positions.

From direct exposure to crypto to backing firms developing products and services in the digital asset space, institutional investors are building a more significant presence in the cryptocurrency and blockchain space. Back in June, a survey of 100 chief financial officers at hedge funds across the world indicated an expected increase in crypto exposure for hedge funds in the next five years.

As regulated entities continue to explore digital currency investment options, crypto regulations also seem to be taking shape in many jurisdictions. Meanwhile, in the U.S., regulators such as the Securities and Exchange Commission are coming under significant pressure to enact a stricter legal framework for cryptocurrencies.

Crypto investment appeal still strong

Earlier in July, Cointelegraph reported that London-based hedge fund giant Marshall Wace was set to create an investment portfolio focused on digital assets. According to the report, the $55-billion hedge fund was looking toward late-stage funding for digital finance companies and blockchain outfits working on use cases such as payment systems for digital currencies and stablecoins.

Amit Rajpal, CEO of Marshall Wace Asia Limited, outlined the company’s digital asset investment thesis, stating that the focus is on projects working toward redefining financial services, especially in the area of payments. According to Rajpal, digital finance is already changing the architecture of the underlying financial system.

Even before reports of its crypto-focused investment portfolio emerged, Marshall Wace had made some forays into the digital asset space. Back in May, the hedge fund participated in USD Coin (USDC) stablecoin issuer Circle’s $440-million fundraising round.

Marshall Wace is only the latest in a growing list of hedge funds and other institutional investors exploring crypto investment options. In April, United Kingdom-based asset management outfit Brevan Howard floated an $84-million crypto investment fund.

Speaking to Cointelegraph China earlier in July, Cornell University professor and Avalanche creator Emin Gün Sirer stated that the current market downturn had done little to dampen enthusiasm for crypto exposure among institutional investors. According to Sirer, the legitimacy of crypto as an asset class is “beyond question,” stating:

“I have been getting contacts from retirement funds, not hedge funds, but retirement funds. Very different piece, far more slower-moving but with maybe 10 times more dollars under their control and they are slowly coming into crypto.”

Joe DiPasquale, CEO of crypto hedge fund BitBull Capital, also echoed Sirer’s comments, telling Cointelegraph, “Institutional investors are still interested and continue to build positions at key support levels.”

“Naturally, the market hype has dampened, but these downturns have been historically opportune moments for long-term entries,” the BitBull Capital CEO added.

A spokesperson for Nickel Digital Asset Management, a $200-million crypto hedge fund, also provided some insight into the emerging strategies among institutional players amid the current range-bound trading for cryptocurrencies. In a conversation with Cointelegraph, the Nickel Digital representative said, “We are seeing active and continuous engagement from the entire institutional community, including (but not limited to) pensions, foundations, endowments and funds of hedge funds,” adding:

“Recent volatility has proved to be an opportunity for certain trading strategies (like market-neutral arbitrage) while being a headwind for others (beta exposures to underlying…