Even amid the sector's volatility, the potential to accumulate large amounts of wealth means that a growing number of traditional hedge funds are taking the risks of investing in cryptocurrencies and digital assets. Around four in ten funds have already done so, while more than a quarter would "definitely" accelerate investment in the sector.
hedge fundCrypto hedge funds offer several advantages for investors such as making this type of investment through asset management by highly skilled professional fund managers using leverage techniques (using borrowingto increase the return earned on capital employed) or any other technique that allows you to maximize returns for your investor clients (particularly important in the world of cryptocurrencies , where inexperienced investors can fall victim to scams and pullbacks that flood the industry), higher potential returns (thanks to the high-risk/high-return strategies often employed by these funds) and diversification away from over-reliance on traditional hedge funds.
Of course, in addition to the benefits of investing in these funds, there are some drawbacks and/or risks to consider such as potentially high performance fees, limited access for individuals who do not have a high net worth, and in general, the risky nature of both the cryptomarket and hedge fund investing.
The objective of the hedge fund manager is to achieve the highest possible return, even if this means taking enormous financial risks. In order to do so, most hedge funds are located in tax havens, where they also pay less tax, such as the Cayman Islands, the United States, Gibraltar, the Bahamas, Luxembourg...
The Alternative Investment Management Association (AIMA) and Elwood Asset Management (now part of CoinShares), have collaborated on a new PwC study, which reflects that a growing number of specialized crypto funds are being created as the digital asset class gains acceptance.
PwC in its fourth global report entitled "PwC Global Crypto Hedge Fund Report 2022" states that 38% of funds surveyed by the professional services firm already invest in digital assets, up from 21% the previous year. The choice of investments also appears to be evolving, looking to invest in non fungible token (NFT) markets, decentralized exchanges (DEX) and assets other than Bitcoin and Ethereum.
In addition to the numerous hedge funds investing in cryptocurrencies, many larger "traditional" asset managers have been exploring the cryptocurrency space, working on pilot projects and are now beginning to launch products. This will help accelerate the institutionalization of cryptomarkets and, as they mature, regulation and infrastructure will continue to improve.
At the European level we have the two regulations mentioned above, MiFID II and the DORA Regulation. The first mentioned directive regulates the conditions for authorization and operation of Investment Services Firms (ESI) reinforcing investor protection and conduct of business rules; whereas, the DORA Regulation will ensure that the digital financial sector in Europe can continue to operate resiliently in an environment of digital transformation and large technological organizations.
In Spain, the Government approves the draft reform of the Securities Markets Law to boost corporate financing and increase investor protection, especially in the area of cryptoassets. The CNMV designates hedge funds as Instituciones de Inversión Colectiva de Inversión Libre (IICIL).
The regulation modernizes the regulation and advances in the incorporation of European regulations to face the challenges arising from the digitalization process. In this area, it establishes the necessary provisions to apply in Spain the European regulations on cryptoassets immediately after their approval, by providing the CNMV with the necessary powers to guarantee investor protection and financial stability in this area. (MINISTRY OF ECONOMIC AFFAIRS AND DIGITAL TRANSFORMATION, 2022).
Thus, the scope of application of the standard includes any financial instrument that is a cryptoasset, i.e., that is represented by means of distributed registration technology.
At Vicox we help entrepreneurs raise funds for their investments with the most prestigious Venture Capitals in the crypto market.
