Crypto hedge funds: Who are the most influential firms investing in crypto?

The growing maturity of the cryptocurrency industry in 2022 led to the correlation between bitcoin (BTC) and US stocks reaching a new all-time high.

Analysts say that the growing interest of institutional investors in cryptocurrency is one thing driving this link.

According to a paper written by blockchain research company Arcane Research, "The increased correlations are likely caused by the institutionalization of bitcoin." This means that bitcoin is grouped with growth stocks as risky assets.

According to a survey published by PricewaterhouseCoopers, more than a third of conventional hedge funds are already investing in cryptocurrencies. This shows that bitcoin and other coins are becoming increasingly seen as a separate asset.

What is a crypto hedge fund?

The Securities and Exchange Commission (SEC) of the United States says that hedge funds are investment groups that pool money from many investors with the goal of making money.

Investors who can pay higher management fees and the risks associated with hedge fund investing are often the only ones who can participate in hedge funds. Also, the amount of money you have to put down as a minimum to invest in hedge funds is often quite large.

The SEC also said that hedge funds are not subject to the same stringent regulations as mutual funds. They have more freedom to choose high-risk assets and strategies when they use leverage, short selling, and many other speculative financial tools.

Investing in cryptocurrency and other digital assets is the primary focus of many crypto hedge fund organizations. Besides investing in stocks, fixed income, foreign currencies, and commodities, other cryptocurrency hedge funds have been making these kinds of investments.

Crypto hedge funds and venture capital firms

As a result of the fact that crypto hedge funds and institutional cryptocurrency investment companies often invest a significant portion of their capital in coins—far more than the typical retail investor does—these types of investors have substantial liquidity in an asset. Institutional players' actions will have a bigger effect on the price if retail investors are aware of them, so they need to know what they are doing.

It's important to note that not all of the businesses discussed in this article are cryptocurrency hedge funds like the ones described above. Some of them are venture capital businesses and exert an equivalent amount of influence, perhaps more, than their hedge fund counterparts do on cryptocurrency markets.

Pantera Capital: First US crypto hedge fund

Pantera Cash is a cryptocurrency investment fund that offers investors a broad number of alternatives for allocating their capital. These possibilities range from blockchain sector venture equity to early-stage tokens and liquid cryptocurrencies. Pantera Capital was founded in 2017.

Pantera's Liquid Token Fund is "predominantly driven by a discretionary approach focusing on decentralized finance and adjacent assets," as stated on the website of the business, and it invests in 15 to 25 different liquid tokens at any given moment in time. In November of 2017, Pantera's Liquid Token Fund was made available to investors. The Pantera Blockchain Fund is an investment vehicle that targets early-stage tokens, venture equity, and liquid tokens. A minimum investment of $100,000 is required, and there is a 2% management charge and a 20% performance fee associated with it. It requires a minimum investment of one million dollars. Other funds offered by the organization include the Bitcoin Fund, the Venture Fund, the Early Stage Token Fund, and the Select Fund.

Pantera was the first bitcoin hedge fund to debut in the United States, as stated on the company's website, which was established in 2013. As of the 25th of August 2022, the total assets under management (AUM) for Pantera amounted to $4.7 billion.

Morgan Creek Capital Management’s crypto arm

Morgan Creek Capital Management is a hedge fund that is based in North Carolina and offers investment management services to institutional and qualifying clients. These clients include endowments, pension plans, foundations, and family offices. Morgan Creek Capital Management also serves family offices.

Morgan Creek's investing strategy is centered on diversification and the "integration of alternative assets into a standard portfolio," according to the website of the business.

The name of the division of the corporation that manages bitcoin hedge funds is Morgan Creek Digital. It makes seed and early-stage investments in blockchain firms and investments in artificial intelligence and digital assets.

Morgan Creek Digital and Bitwise Asset Management have formed a strategic partnership to launch the Digital Asset Index Fund. This fund will give institutional investors access to the most popular cryptocurrencies.

The performance of the Morgan Creek Bitwise Digital Asset Index is followed closely by investors in the Digital Asset Index Fund. BTC, ETH, ADA, DOT, AVAX, LTC, UNI, ATOM, BCH, and XTZ were the components that made up the index as of August 25th, 2022.

Brevan Howard: Dipping toes into crypto

Brevan Howard Asset Management is a hedge fund that manages assets for institutional investors all over the globe, such as sovereign wealth funds, corporate pension plans, and public pension plans. These clients come from both the public and private sectors.

The business diversifies its holdings by investing in a wide range of asset classes, including stocks, fixed income, foreign currency, and commodities. In September 2021, Brevan Howard set up BH Digital, a company that deals with cryptocurrencies and digital assets.

At least 15 portfolio managers, 10 or more data scientists and traders, and at least 20 external blockchain developers provide assistance for BH Digital.

"BH Digital has created a strong worldwide team that is a unique combination of crypto native talent and conventional investing skills," said Howard. "BH Digital is well positioned to capitalize on the opportunities presented by blockchain technology."

The company plans to increase its investments in the cryptocurrency industry by giving help in a variety of areas, including the development of blockchain technology, public relations, capital raising, compliance, and recruiting. BH Digital has said that it will be involved in running the network and staking and maintaining nodes.

Polychain Capital: Crypto-focused fund

Polychain Capital is a hedge fund with its headquarters in San Francisco that focuses on making investments in the blockchain industry.

The company's website says, "Polychain is an investment company whose goal is to give clients excellent returns through professionally managed portfolios of different blockchain assets."

The company has made investments in a number of different businesses, including the Polkadot-based DeFi protocol Acala, the company that created the layer-one blockchain network Avalanche (Ava Labs), the modular blockchain network company Celestia Labs, and the cryptocurrency exchanges Coinbase (COIN) and Cosmos (ATOM) contributor Tendermint.

Polychain provided only a limited amount of information about the firm on its website. According to a filing with the SEC, Polychain has an AUM value of more than $6.6 billion as of March 31, 2022.

DCG: Grayscale and Coindesk parent

The world's biggest digital asset manager, Grayscale Investments; cryptocurrency broker Genesis Global Trading; and news outlet CoinDesk are all subsidiaries of Digital Currency Group (DCG), which is the parent company of all three businesses.

After selling his previous business, SecondMarket Solution, to Nasdaq, Barry Silbert decided to start a new venture in the blockchain industry in 2015 and turn it into one of the most active investment companies operating in the space (NDAQ).

The structure of DCG is not like that of a traditional hedge fund. Grayscale Investments, DCG's life and wealth management branch, provides investors with single asset and diversified cryptocurrency funds. HQ is the part of DCG that deals with life and wealth management. It offers private investments, wealth advice, and tax, trust, and estate planning services.

Whether via private placements or publicly-quoted products, investors can put their money into Grayscale's cryptocurrency funds, such as the Grayscale Bitcoin Trust (GBTC), the Grayscale Ethereum Trust (ETHE), and the Grayscale Smart Contract Platform Ex-Ethereum Fund. As of August 25th, 2022, Grayscale, which DCG owned, had a total AUM in cryptocurrency-based financial products valued at more than $19.8 billion.

According to information provided on the company's website, DCG is actively contributing to the growth of blockchain networks by purchasing digital currencies and taking part in a variety of token sales. Most of DCG's cryptocurrency assets are Bitcoin (BTC), Ethereum (ETH), Ethereum Classic (ETC), Mana (MANA), Land (LAND), Zen (ZEN), LPT, and ZEC.

DCG has also given money to the bitcoin security company BitGo, the web browser Brave, the blockchain analysis company Chainalysis, the stablecoin issuer Circle, the cryptocurrency exchanges Coinbase (COIN), Kraken, and FTX, the Ethereum explorer Etherscan, the Bitcoin scaling solution Lightning Network, the non-fungible token (NFT) company Dapper Labs, and the payment-focused blockchain network Ripple (XRP).

Andreessen Horowitz (a16z): Solana and Avalanche investor

One of the most powerful and important venture capital companies in Silicon Valley is Andreessen Horowitz. Marc Andreessen and Ben Horowitz are responsible for the establishment of the investment firm that specializes in technology and goes by the name "a16z." Across its several funds, a16z now has $33.3 billion in assets under management (AUM).

Since 2013, the firm has been making investments in several cryptocurrencies. A16Z made the announcement in May 2022 that it would be launching its fourth cryptocurrency-focused fund with a total value of $4.5 billion, bringing the total amount of cryptocurrency funds it has raised since its founding to more than $7.5 billion.

"We believe that the golden age of Web3 is upon us at this very moment." According to a press release issued by the corporation on May 25th, "programmable blockchains have achieved an adequate level of development, and a wide variety of applications have amassed tens of millions of users." More significantly, over the course of the last year, a large flood of talent at a world-class level has joined the Web3 industry. They are very intelligent and enthusiastic people who wish to improve the internet.

a16z's crypto investments include the layer-one network Solana (SOL), the stablecoin protocol Maker, the Avalanche creators Ava Labs, the NFT platform OpenSea, the Axie Infinity (AXS) developers Sky Mavis, and the cryptocurrency hedge fund Polychain Capital. A16z is also an investor in the cryptocurrency hedge fund Polychain Capital.

Sequoia: Tech-focused global investing giant

Sequoia Capital, with its headquarters in California and primary concentration on technological investments, is recognized as one of the most recognizable brands in the venture capital industry. Don Valentine established the business in 1972.

The first Sequoia fund was one of the earliest investors in Apple (AAPL) and also provided support to the company that pioneered video games, Atari. Over its history, the corporation has made investments in several well-known businesses, some of which are included here: Cisco (CSCO), Google (GOOGL), Instagram (META), Airbnb (ABNB), Stripe, and Zoom (ZM).

The company has invested in crypto-native startups like the exchange FTX, the payments company Block (SQ), the Ethereum-based scaling solutions company StarkWare, the digital asset security platform Fireblocks, and the DeFi network Parallel Finance, which is based on Polkadot.

Sequoia announced in February 2022 that it would launch a fund with 500 to 600 million dollars that would primarily invest in cryptocurrency tokens.

Sequoia says, "Our goal with this fund is to get more involved in protocols, help token-only businesses more, and learn by doing by doing ourselves."

Over the course of the past five years, we have made investments in both equity and tokens. However, many people have requested that we play a more active role in managing our tokens. This role would include staking them, providing liquidity, participating in governance, and trading through their respective platforms.

Final thoughts

Take into consideration that cryptocurrency assets are quite volatile. Hedge fund managers and investment businesses can make poor choices, which may result in a loss of capital. It is not appropriate to rely on their thoughts and behaviors in place of conducting your own independent investigation.

Always do your own research and investigation. Remember that whether or not you trade or invest should be determined by your level of comfort with risk, your knowledge of the market, your size of your portfolio, and your long-term objectives. It is important to keep in mind that previous performance is not always indicative of future results. Also, you shouldn't ever trade or invest money that you cannot afford to lose.

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.