Krypto’s death has been greatly exaggerated, again
There is a strange page hidden in the folds of the internet that proclaims that Bitcoin has died more than 460 times.
By this website’s count, the cryptocurrency has been defeated 24 times so far this year, having died 47 times in 2021 and 14 times in 2020. The death rate peaked in 2017 – the year Bitcoin shot to a then-record high near the symbolic $20,000 handle in December, only to fall below $11,000 five days later, losing 45 percent of its value. That year, the cryptocurrency apparently met its demise no fewer than 124 times. Maybe only Prometheus has been felled, only to regenerate, quite a few times.
I’ve been watching this so-called “Bitcoin obituaries” site for years, mostly for its satirical value. The website is clear on what constitutes a Bitcoin “death”, saying that the cryptocurrency can only be officially considered dead when “a person with a significant following or a website with significant traffic” has declared it so. What’s clear from this site — which has been diligently slaying crypto since 2010 — is that no matter how many bitter feuds, lost billions, regulatory gripes or speculative manias grip the burgeoning cryptosphere, its most popular assets are far from clear. , as one critic put it, to just die already.
Crypto is of course not limited to Bitcoin – far from it – but the sentiment surrounding the latter can be a good benchmark for the former. Since 2010, the launch of new crypto hedge funds has been highly correlated with the rise in the price of Bitcoin, which remains the most voraciously traded of all cryptocurrencies. This rule will continue until 2022, which saw the lowest number of new crypto hedge funds entering the market in five years, according to this year’s annual survey of the sector by PwC.
This survey also revealed potentially more than 300 crypto hedge funds still humming along globally, with half launched in the last three years. Those who end up making it through 2022’s crypto carnage will have bragging rights for years to come. They also want another arrow in their quiver: Much more money.
According to PwC, the average assets under management for crypto hedge funds as of 2021 was $58.6 million, an increase of nearly 60 percent from the previous year, based on the same sample set of funds, placing them well above the $20 million threshold that is considered a critical mass for traditional hedge funds. In other words, crypto hedge funds were well capitalized during the year, and many are expected to survive the turbulence.
Crypto’s obnoxious refusal to die has enraged many, and has inspired no shortage of blisters. “All fads end the same way, with a sharp correction that collapses prices like a house of cards. . . . In a nutshell, it’s another case of greed negating fear until it’s too late for anything but panic,” warned a report out this month on the dangers of “cryptomania” from the Brookings Institution, a non-profit think tank in Washington.
However, the latest washout should not be called a panic – it has not been so sudden or fleeting. It would more appropriately be called a month-long grind, marred by catastrophic price swings that have increasingly moved crypto assets further away from their $3 trillion high-water mark recorded in early November 2021, almost a year ago. Around the same time last year, Bitcoin also hit its highest ever market cap of $1.28 trillion. It has now fallen far from that perch, hovering at $370 billion, trading at just over $19,000, its range for the past month.
While Brookings found the “outsized monetary and fiscal impulses in core economies” partly to blame for soaring prices in what it called “the bubble pandemic years”, it placed much of the blame on “uninformed investors” with a soft spot for disruptive innovations, a hunger for easy, illusory profits, and a blind faith in paradigm shifts that “seem to sustain momentum over time, often conveniently seasoned with abundant global liquidity.”
And it’s not just about kicking crypto when it’s down. Many in the financial community have been apoplectic all along, albeit increasingly quietly, as they have been forced to play nice with cryptocentric clients and partners. When Russia invaded Ukraine, leading to a surge in the use of cryptocurrencies by bad actors to circumvent economic sanctions, the private grumbling on Wall Street was palpable. Had the US missed its chance to crack down on crypto before it undermined national security? Not so, according to a recent report, which found that crypto is, unsurprisingly, not liquid enough to drive evasion of major sanctions. But what the crypto did do was raise more than $60 million in donations to Ukraine from around the world in the first weeks of the invasion, allowing the government to buy desperately needed military equipment and medicine.
That does not mean that cryptoassets should be given unfettered, wild hegemony. Perhaps one of the most compelling criticisms to emerge during this past crypto winter is a letter sent to members of Congress earlier this year, signed by more than 1,500 technologists, researchers and academics from a bold list of companies and institutions, including Google. Microsoft, Amazon, Facebook/Meta, Massachusetts Institute of Technology, University of Pennsylvania, University of California, Berkeley and many others.
They were brutal in their assessment: “The disasters and externalities associated with blockchain technologies and investments in cryptoassets are neither isolated nor the growing pains of a new technology,” the letter states. “They are the inevitable results of a technology that was not built for the purpose and will remain forever unsuitable as a basis for large-scale economic activity.”
The group urged lawmakers to move quickly to improve oversight of fintech and “take a critical, skeptical approach to industry claims that cryptoassets . . . is an innovative technology that is unreservedly good” and to “ensure that individuals in the United States and elsewhere are not exposed to predatory finance, fraud, and systemic financial risks.”
A letter like this—combined with crypto’s retrenchment, rising interest rates, inflation and recession fears, plus the extraordinary litany of spectacular fires, bankruptcies, and frauds this year—should be enough to put a permanent damper on any institutional interest in cryptocurrencies and digital assets . But it hasn’t. While retail investors have been gutted and duly chastised, institutional investors – astonishingly – are actively looking for their next entry point into the market, convinced that they haven’t seen the last of their bonanzas.
The Brevan Howard Digital Asset Multi-Strategy Fund, the dedicated crypto and digital asset division of the $25 billion UK hedge fund, raised more than $1 billion from institutional investors as of this summer, representing one of the largest crypto hedge funds – the launches until now. defy the crypto hibernation.
What more, Institutional investor has learned from sources familiar with Brevan Howard’s crypto fund that, although BH Digital is no longer actively raising money, BH Digital, which oversees Brevan Howard’s crypto traders, still sees a phalanx of institutional clients clamoring to get into the fund, launched in January. A well-placed Wall Street source involved in matching clients says there are many investors still looking to distribute, which could easily take BH Digital to $2 billion.
About 85 percent of Brevan Howard’s crypto fund was raised from funds of foundations, family offices, high net worth individuals, and pensions and endowments (roughly in that order), with Brevan Howard contributing about 15 percent of his own funds to the crypto. – trading unit.
BH Digital, which started operations in September 2021, proposes to invest in a “broad spectrum of diverse opportunities presented by structural disruption and innovation of blockchain technology”, while imposing strict controls, institutional governance, risk management and expertise native to crypto markets. Brevan Howard has employed a team of more than 60 people, with portfolio managers, analysts, quants and data scientists set up in eight offices around the world. The fund has already received high marks for nimbly circumventing the worst crypto losses this year.
The eagerness of institutional investors to continue splashing for crypto is not limited to Brevan Howard’s success, observes Jeff Howard, head of North America institutional sales and business development at OSL, a Hong Kong-based crypto broker and exchange. “Institutional investors are super bullish right now on crypto going into the fall,” he says. “They are happy with the sale, especially the ones that did well, because it took leverage out of the market and provides a good entry point.”
Howard says that at OSL, August and September were “two of the biggest volume months of the year,” up 250 percent compared to the same period last year, with institutional investors leading the way, but benefiting from the massive crypto volumes from February to June, which were as high as 220 billion dollars a month. So far, crypto volumes through the October OSL have come in at just over $180 billion, with retail investors exiting the market and institutional investors cautiously re-entering.
A major stumbling block for crypto continues to be timing the market with its cratering prices, Howard says, while institutional investors take a tactical approach to getting back in. that, he says. “With so much uncertainty, it will be difficult for crypto to go higher. People are ultimately looking for a catalyst, whether it’s up or down, to make their next move, but there are a lot of mixed messages.”
Meanwhile, lower prices are allowing crypto investors and businesses to take a beat and reassess, with many using the downtime to make plans for a new phase of growth. “Equity-backed trading firms, market makers and hedge funds, I talk to them all,” says Howard. “And they are aggressively growing their crypto businesses right now.”
As one industry source puts it, the hope is that the new year can offer a fresh start, some clarity on the direction of the market and an opportunity for existing funds that made it through 2022 to say: “We performed, we did it” Because not to explode, we are structured to get through a crypto meltdown.”
That is, if they make it through 2022. In crypto time, a few months are the same as millennia.
