CEO of crypto investment firm Galaxy Digital and former hedge fund manager, Mike Novogratz, stated that two-thirds of the crypto hedge funds will fail as a result of the sharp downtown this year in the price of these assets.
Future of Crypto Hedge Fund
While speaking at the Piper Sandler Global Exchanges & Brokerage Conference in New York, Novogratz said that hedge funds investing in crypto will ultimately have to restructure. The exec also observed that the current state of the crypto market is the consequence of the Fed’s removal of stimulus as well as Terra’s downfall that dented the investor confidence in the space.
“Volume will go down, hedge funds will have to restructure. There are literally 1,900 crypto hedge funds. My guess is two-thirds will go out of business.”
Hedge Funds Embracing Crypto
Novogratz’s comments come at a time when traditional hedge funds are increasingly dipping their toes into digital assets. According to PricewaterhouseCoopers’ (PwC) 4th Annual Global Crypto Hedge Fund Report 2022, approximately one-third of traditional hedge fund respondents in the survey are already investing in Bitcoin and other digital assets. So far, the hedge funds have kept their exposure limited.
In fact, 57% of the hedge funds have allocated less than 1% of their total assets under management (AUM). Around 67% of those surveyed and currently investing in the market intend to deploy more capital into the asset class by the year-end. Even those hedge funds not yet investing in crypto confirmed that they are in late-stage planning to invest or looking to do so.
While regulatory and tax uncertainty continues to remain a constant barrier to the adoption, lack of infrastructure and the availability of service providers is yet another challenge that many hedge funds are facing from actively participating.
Mike Novogratz and Terra Collapse
The crypto bull has also been criticized for his role in the Terra ecosystem. Interestingly, he had not only invested in LUNC (formerly LUNA) but even got a tattoo. Galaxy Digital had invested in the Terra ecosystem since September 2020, long before the token cracked the top 10.
Terra’s crash did not hurt Galaxy much because the company not only diversified its portfolio, frequently took profits rather than letting it all ride, leveraged a risk management framework, and recognized its investment would be affected by macro events. He went on to say that the event was a learning opportunity for many players in the sector.