Wall Street giants such as Goldman Sachs are increasingly at risk of being left behind as cryptocurrency funds are the fastest growing segment of the hedge fund industry.
Cryptocurrency Hedge Funds Are Growing the Fastest
A few months ago, Wall Street seemed to be embracing Bitcoin, and giants such as Goldman Sachs and Morgan Stanley were developing infrastructures to trade Bitcoin. But then, after the value of digital coins collapsed last year, Wall Street top bosses got cold feet and shelved their projects.
Yet giant U.S. banks like JPMorgan Chase, Goldman Sachs Group and Bank of New York Mellon that dominate Wall Street trading in everything from bonds, stocks, commodities, and foreign exchanges are increasingly at risk of missing out due to their own reluctance to jump into the cryptocurrency market.
Wall Street executives’ excuses abound, ranging from lack of federal regulations to the potential of nefarious activities executed using cryptocurrencies.
Another Wall Street concern is regulators’ inertia. Several key initiatives that would help to trigger an explosive expansion of the crypto market have yet to receive regulatory approval.
Nevertheless, investors continue to inject money into the crypto market. Thus, spite the 2018 crypto winter, worldwide, the rate at which new crypto-related funds were launched increased. The Crypto Fund Research underlines, “We are on pace for a record 200+ new launches for 2018, including crypto hedge funds, crypto venture funds, and crypto private equity.”
Granted, financial instruments focusing on the nascent crypto assets market are still small. “All crypto funds combined make up less than 1% of total hedge fund assets,” according to a Crypto Fund Research report, which specifies,
There are currently more than 700 cryptocurrency/blockchain investment funds. The majority are set up as hedge venture capital funds, while a large number are hedge funds or hybrid funds. There are also a handful of crypto ETFs and crypto private equity funds.
The United States is the country were most crypto funds have been launched. However, the launching of new crypto funds is also increasingly occurring in Europe, Asia, offshore (Cayman Islands), and Mexico. See the comprehensive list of crypto fund launches here.
The Crypto Fund Research report concludes,
Crypto hedge funds are the fastest growing segment of the hedge fund industry.
Moreover, crypto assets under management continue to grow, as the graph below shows:
Bitcoin-Based Startups Are Springing Up
On the other hand, smaller but visionary companies continue creating new Bitcoin-related solutions.
For instance, Coinbase is now launching a solution that offers financial investors the opportunity to earn interest on specific cryptocurrencies they hold.
Additionally, Square is searching for talent to staff teams that will work on the crypto space. To attract candidates, Square offers to pay developers and crypto engineers in bitcoin.
Moreover, help to increase the growth of the overall crypto market might indirectly come from social media giant Facebook. In effect, Facebook is reportedly planning to use cryptocurrency technology to transfer money via Whatsapp.
Sandler forecasted as much as $19 billion in additional revenue by 2021 from ‘Facebook Coin.’ Conservatively, the firm sees a base-case of an incremental $3 billion in revenue from a successful cryptocurrency implementation.
What do you think about Wall Street’s inertia towards the crypto industry? Let us know in the comments below!
Images via Crypto Fund Research, Shutterstock