A clutch of cryptocurrency-focused hedge funds have made a windfall in recent weeks as the election of Donald Trump fueled a powerful rally that propelled bitcoin above $100,000.
Funds using crypto strategies posted gains of 46 percent in November, bringing their annual return to 76 percent, according to data provider Hedge Fund Research. Returns have outpaced the broader industry, with the average hedge fund gaining 10 percent in the first 11 months of this year, HFR said.
Brevan Howard Asset Management and Galaxy Digital, the cryptocurrency investment manager founded by billionaire Mike Novogratz, have been among the biggest winners from the recent digital asset sweepstakes.
Crypto currencies' more gains came after Trump's election victory in November added a new jolt of interest to this year's rally in bitcoin, the biggest cryptocurrency, which also sent smaller tokens soaring.
Bitcoin has surged 130 percent this year to around $100,000, helping push the market value of major crypto brands up $1.8tn to $3.5tn, according to FT Wiltshire Digital Assets Dashboard. The crypto market retreated from recent highs this week after the Federal Reserve said it would cut rates less than expected next year, hitting riskier assets.
Investors are betting that Trump's crypto-friendly nominees for top government jobs will be unlike the Joe Biden administration, which has largely taken a skeptical approach.
“Trump's election is great news for the digital world because it will bring more clarity to the regulatory landscape,” said Damien Miller, managing partner at macro hedge fund MP Alpha Capital. “There will be a more friendly and collaborative environment for bitcoin and blockchain.”
Brevan Howard's big crypto fund gained 33 percent in November, and now 51 percent in the first 11 months of the year, according to investors. Brevan Howard, with assets of 35 billion dollars, is one of the largest hedge fund managers to have a dedicated crypto business, launched in 2021.
The Galaxy hedge fund's strategy gained 43 percent in November, and is up 90 percent by 2024, according to investors. The New York-based group has doubled its assets under management in the past two years, to $4.8bn, in part. buy up goods from crypto companies that don't have money.
Galaxy and Brevan Howard declined to comment on their careers.
The recent surge in the digital asset marks a dramatic turnaround in fortunes for a sector that was in deep trouble starting in 2022.
Bitcoin hit a low of around $15,500 when Sam Bankman-Fried's FTX exchange collapsed in November 2022. Galaxy, which sought to position itself as a full-service cryptocurrency exchange, posted a $1bn loss that year.
The cryptocurrency industry found the file January 2024 when the US Securities and Exchange Commission approved 11 exchanges that traded bitcoin money, opening the door to new cryptocurrencies for institutions and sales. BlackRock, the world's largest asset manager, said last week it sees “a case for including bitcoin in multi-asset portfolios”.
NextGen Digital Venture, a crypto equity fund of 120mn, has increased by 330 percent from its launch in March 2023 to the end of November, according to investors. It has also benefited from positions in other bitcoin ETFs, as well as cryptocurrency exchange platform Coinbase and software provider turned bitcoin investor MicroStrategy.
“After the ETF was approved we felt that crypto stocks would be another opportunity for institutional investors because they already have access to bitcoin,” said Jason Huang, founding partner of NextGen Digital Venture.
Coinbase is up about 60 percent since the end of 2023, while MicroStrategy is up more than 400 percent.
Some large hedge funds – which trade in macroeconomic strategies in currencies, commodities, bonds and stocks – have also increased exposure to digital assets in anticipation of favorable market conditions. MP Alpha Capital's $20mn global macro hedge fund is up more than 30 per cent this year, according to investors.
“We've done well in digital assets: bitcoin, ethereum and bitcoin miners,” said Miller, referring to firms that complete complex calculations by exchanging tokens.. “For the past 18 months, our whole thesis has been about the adoption of digital tools and the background of monetary policy, a weak dollar and a rich environment.”
Trump has shown that crypto management is among the most important things for him, and he named the capitalist and Elon Musk loyalist David Sacks as the White House's. cryptocurrency tsar.
The change in leadership at the SEC, the highest regulator of American securities, was also welcomed by crypto enthusiasts.
Gary Gensler, the current chairman who said that crypto is a “wild west” full of illegality and investment risk, will step down when Trump takes office. He refused to create technical rules for digital assets, arguing that many tokens are securities and that existing securities laws are insufficient guidance.
Gensler will be replaced by a cryptocurrency representative Paul Atkins.
However, several executives have warned that bitcoin's rise should prompt investors to stop and buy the stock. Huang at NextGen Digital Venture said that, while he is long on bitcoin and crypto, “there is no asset that rises directly without volatility.”