New evidence by Intertrust Global Firm suggests that institutional hedge funds won’t mind increasing their investment into the crypto market (including bitcoin) by 2026. Out of the 100 hedge funds CFOs polled by this firm on their opinion about investing in the virtual asset industry, 98 of them responded in the affirmative.
They affirmed that they would invest about 7.5% of their virtual assets in the crypto market over the next five years. When measured across the cryptocurrency space, that 7.5% investment would equate to about $313 billion.
Yet, 18% of these CFOs acknowledged that their cryptocurrency investments (especially bitcoin investment) may likely be about 10% of their assets.
Despite this revelation, some analysts predict that bitcoin will decline significantly because of overvaluation. The leading cryptocurrency had risen from about $4,000 as of March 2020 to about $64,500 as of April this year.
While it has corrected by more than 50% since that peak price in April 2021, it is still holding through technical supports at about $31,000 and had rallied to over $41,000 as of the beginning of this week.
Bitcoin price chart from March 2020 to May 2021. Source: TradingView
Why Bitcoin Price Boomed?
The March 2020 start of the COVID-19 pandemic caused a huge market crash globally. The response from the government was to pump more money into circulation. Thus, leading to the increasing popularity of the analogy of the anti-inflation effect of bitcoin and consequently shooting up its price.
For instance, the U.S. Federal reserve bank launched an almost zero lending rate policy and a $121 billion monthly asset purchase initiative. This federal reserve’s decision almost collapsed yields on the U.S. Government bonds.
However, rising monetary injections into the economy caused a further decline of the dollar’s value against other leading fiat currencies. The dollars’ value against its competition wasn’t helped by the injection of trillions of dollars in stimulus aid into the economy by the white house.
Hence, most investors were forced into investing in inflation-proof assets such as bitcoin, silver, gold, and stocks. But bitcoin offered the best anti-inflation returns amidst increasing money-printing policies by the American government.
Lots of traditional fund managers who became bitcoin advocates also contributed to the 2020 bitcoin price boom. For instance, Paul Tudor Jones and Stan Druckenmiller publically admitted to investing some of their assets into bitcoin as protection against inflation.
Other finance giants that became bitcoin advocates include U.S. Fund firms (like ark invest, fidelity investments, and Skybridge capital) as well as Brevan Howard, a European hedge fund management firm.
The study by Intertrust global revealed that all these hedge funds already have at least 1% investment in bitcoin and other cryptocurrencies. The firm predicted that there would be about 11% crypto investments by North American hedge funds, while that of the U.K. and Europe will likely be about 7%.
Inflation On the Rise?
The Intertrust global study coincides with the U.S. labor department’s monthly consumer price index (CPI) report states that inflation in the U.S. Is now at 5% (a 29-year high). Hence, Randall Kroszner (a former fed chief) and other analysts are predicting that if inflation goes higher, the Fed might reduce its expansionary policies.