Mike Novogratz, CEO and former hedge fund manager of crypto investment firm Galaxy Digital, said that two-thirds of crypto hedge funds will fail this year as a result of a sharp drop in the price of these assets.
The future of crypto hedge funds
Speaking at the Piper Sandler Global Exchange and Brokerage Conference in New York, Novogratz said that hedge funds investing in crypto will eventually have to restructure. The exec also observed that the current state of the crypto market is a result of the removal of incentives by the Fed as well as the collapse of Terra which has affected investor confidence in the space.
“Volumes will go down, hedge funds will have to restructure. There are literally 1,900 crypto hedge funds. I estimate that 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 in digital assets. According to PricewaterhouseCoopers’ (PwC) 4th Annual Global Crypto Hedge Fund Report 2022, nearly a third of traditional hedge fund respondents surveyed are already investing in bitcoin and other digital assets. So far hedge funds have limited their exposure.
In fact, 57% of hedge funds have allocated less than 1% of their total assets under management (AUM). Nearly 67% of those surveyed and currently investing in the market intend to infuse more capital into the asset class by the end of the year. Even those hedge funds that are not yet investing in crypto have confirmed that they do or are planning to invest.
While regulatory and tax uncertainty remain a constant barrier to adoption, lack of infrastructure and availability of service providers is another challenge that many hedge funds are actively participating in.
Mike Novogratz and Terra Fall
Crypto bulls have also been criticized for their role in the Terra ecosystem. Interestingly, he not only invested in LUNC (formerly LUNA) but also received a tattoo, Galaxy Digital has been investing in the Terra ecosystem since September 2020, long before the token reached the top 10.
Terra’s crash didn’t hurt Galaxy much because the company not only diversified its portfolio, but often took profits instead of letting it run outright, took advantage of a risk management framework, and assumed its investments were under macro events. will be affected by. He further added that the event was a learning opportunity for many players from the region.
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