Global hedge fund managers expect to invest an average of 7.2% of their assets in Bitcoin and other cryptocurrencies by 2026, a survey found.
That could mean hedge funds will invest as much as $312 billion in the next five years, or about 41.5% of Bitcoin’s current market cap.
Intertrust, a publicly traded international trust and corporate management firm based in the Netherlands, surveyed 100 hedge fund managers worldwide and found that some firms plan to allocate as much as 10% or more of their portfolios to cryptocurrencies.
Hedge funds typically target high net worth investors and invest pooled funds using different strategies, including long and short positions in a range of assets, to generate returns in varying market conditions.
Results of Intertrust’s survey were first reported by the Financial Times, a British newspaper.
Bitcoin is the world’s largest cryptocurrency by market cap and therefore receives most of the news coverage.
But hedge funds are also likely to invest in Ethereum, the second-largest crypto by market cap and key to the development of decentralized finance—blockchain-based transactions between individuals that don’t rely on financial intermediaries such as banks, brokerages or exchanges.
In a research report, the St. Louis Federal Reserve Bank said Ethereum is better suited for commerce than Bitcoin.
Interest in cryptos by top money managers underscores Bitcoin’s growth as an asset class. Many institutional investors use it as an inflation hedge, fearing that massive government spending worldwide in response to the COVID-19 pandemic will lead to inflation.
The planned investments are also a vote of confidence in Bitcoin. Critics say Bitcoin is too volatile to serve as a store of value or to use in commerce.
The cryptocurrency rose from about $29,000 at the end of 2020 to more than $63,000 in April. It lost as much as half its value in the recent downturn but has rallied and now trades at about $40,000.
The number of Bitcoin worldwide is limited to 21 million and there are now about 18.73 million coins in circulation. As long as demand remains strong, Bitcoin’s price should, in theory, rise over time, especially if millions of new dollars are chasing a limited number of coins.
Increased investment by major institutions and top companies could smooth out Bitcoin’s manic price swings. Some analysts believe major institutional investors will continue to hold Bitcoin despite day-to-day price fluctuations, including a sharp plunge.
Many retail investors, especially those who held Bitcoin for six months or less, sold during their recent downturn, analysis of blockchain activity showed. What looked like panic selling stoked Bitcoin’s volatility.
A small number of new coins are regularly added to the market.
Tim Draper, a billionaire venture capitalist and Bitcoin investor, believes Bitcoin will hit $250,000 by 2022 or early 2023.
“I think I’m going to be right on this one,” Draper told CNBC.
He first predicted Bitcoin’s rise in 2018 when it fetched about $8,000.
But many believe Bitcoin has no real value and eventually its price will collapse.
A survey of fund managers conducted by Bank of America in April found that 74% of respondents believed Bitcoin is a bubble. Nevertheless, about 10% of those responding to the survey said they believed Bitcoin would outperform the market as a whole in 2021.
In a research note published in March, analysts at Bank of America said there is “no good reason to own Bitcoin unless you see prices going up.”
The crypto’s volatility makes it unsuitable as a store of value or as a means to make…