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Paul Tudor Jones' Bet on Bitcoin Supported by CME’s Bitcoin Futures CFTC Data and PwC’s Latest Crypto Report

Paul Tudor Jones: The Great Monetary Inflation

Billionaire hedge fund manager Paul Tudor Jones was reportedly looking to buy Bitcoin to hedge against inflation as central banks across the world are printing money to relieve economies affected by the coronavirus pandemic. Jones is one of Wall Street’s most seasoned and successful hedge fund managers, CEO and founder of Tudor Investment Corp, a hedge fund that managed $8.4 billion assets under management as of March 30, based on data from the Securities and Exchange Commission.

Jones compared Bitcoin to gold by saying that the digital currency reminds him of the role that gold played in the 1970s. Jones was well known for his correct prediction of the 1987 market crash and shorted Japanese equities several years later before Japan’s economy crashed.

Jones said in an investor letter, called The Great Monetary Inflation, “The best profit-maximizing strategy is to own the fastest horse. If I am forced to forecast, my bet is it will be Bitcoin.” As money-printing will push traditional investors to gold, he believes that the world will then “crave new safe assets,” which may be beneficial to Bitcoin. He added, “Quite often, how the markets respond will be at odds with your priors. But remember, the P&L always wins in the long run. With that in mind, in a world that craves new safe assets, there may be a growing role for Bitcoin.”

Last week, Arthur Hayes, CEO of one of the world’s largest crypto exchanges, BitMEX tweeted that Jones has made the right move to invest in cryptocurrencies such as Bitcoin, and has removed career risks by doing so.

PwC’s latest crypto hedge fund report

In an annual report by Elwood Asset Management and consulting firm PricewaterhouseCoopers (PwC), the value of assets under management at cryptocurrency hedge funds has soared to $2 billion, doubling the value in 2019.

With over 50 funds surveyed, most crypto hedge funds trade Bitcoin (97%), and Ethereum was the next most popular crypto (67%). Around half of the crypto hedge funds trade derivatives or were active short sellers.

The coronavirus pandemic has led to an inquiry of how hedge fund managers reduce counterparty risks, as the use of independent custodians has also surged from 51 percent in 2019 to 81 percent in Q1 of 2020. Henri Arslanian, the co-author, and PwC Global Crypto Leader said, “The changes the crypto hedge fund industry has seen in the past 12 months, from additional regulatory clarity to the accelerated implementation of best practices are great examples of how fast the industry is becoming increasingly institutionalized.”

The report also highlighted that of the 150 active crypto hedge funds around, about 63 percent were launched in 2018 or 2019. The launch of the actively managed crypto funds is also highly correlated with the price of Bitcoin. As the price of Bitcoin surged exponentially in 2018, it became a breeding ground for new crypto funds. There was also a correlation observed at the end of 2019, as Bitcoin faced a bear market, there was also a decline in new fund launches.

According to CFTC data, CME Group Bitcoin futures saw a record number of large open interest holders this week, at 66. Long open interest from hedge funds trading Bitcoin futures also high an eight-month high, reaching over $15 million on May 5.

Brevan Howard Is Launching a New Business Unit Focused on Crypto

Brevan Howard, a European hedge fund asset management firm, has announced extending its reach into the cryptocurrency sector by forming a new crypto-focused division called BH Digital.

Brevan Howard, one of the world’s largest hedge fund companies and popularly known for its bets on macroeconomic trends, is now taking direct exposure with cryptocurrencies.

The development highlights the move by traditional financial management firms to gain exposure to the quickly growing market.

Brevan Howard hedge fund firm has stated that it is creating BH Digital, a new unit that will manage cryptocurrencies and digital assets.

The hedge fund company further mentioned that it has hired Colleen Sullivan, a co-founder and former CEO of the digital arm of trading firm CMT, to oversee the funds’ private and venture investments in cryptocurrency.

Last month, Sullivan stepped down as CEO of CMT Digital, the investment arm of Chicago proprietary trading company CMT Group.

CMT Digital, a specialist cryptocurrency and blockchain technology company, had invested in many large cryptocurrency companies, like crypto-friendly Silvergate bank, crypto derivative platform ErisX, crypto venture capital pioneer Polychain capital, and crypto leader BlockFi.

Hedge Fund and Cryptocurrencies

In April, Brevan Howard announced that it was planning to invest in cryptocurrencies.

During that time, the company stated plans to allocate up to 1.5% of its main hedge fund (worth $5.6 billion during that time) to direct exposure in crypto assets, meaning that the firm would invest $84,000,000 into cryptocurrencies.

Brevan also stated that its cryptocurrency fund would have a diverse portfolio, focusing on several crypto assets besides Bitcoin (BTC) and Ether (ETH).

A survey done by PWC and Elwood Asset Management indicates 47% of traditional hedge fund firms have entered or plan to enter the cryptocurrency market. The research surveyed 39 hedge fund firms in the first quarter this year with a total of $180 billion in assets under management.

The survey also identified that the total assets under management for crypto-based hedge funds had nearly doubled from $2 billion in 2019 to almost $3.8 billion in 2020.

Evidence shows that hedge fund firms have increased their search for hiring crypto talents to help them manage their cryptocurrency investments.

Image source: brevanhoward.com

Hedge Fund Billionaire Ken Griffins Manages to Outbid for Copy of US Constitution

Ken Griffin, the founder and CEO of hedge fund company Citadel LLC, acquired a first-edition copy of the US Constitution at a Sotheby’s auction house on November 18.

The billionaire investor paid $43.2 million to secure the document, beating an outbidded group of crypto investors- ConstitutionDAO who also had the same interest of acquiring the extremely rare first-run printing.

Griffin, who is also an art collector, plans to loan the piece to the Crystal Bridges Museum of American Art in Bentonville, Ark, a free museum founded by Philanthropist and Walmart heiress Alice Walton.

Citadel confirmed that Griffin made the winning bid that beat out thousands of crypto investors who worked together to secure the document at Sotheby’s auction.

Sotheby’s stated that the sale set a world auction record for any manuscript, book, historical document, or printed text, as the amount was more than double its $20 million high estimates.

Meanwhile, Griffin talked about the development and said: “The U.S. Constitution is a sacred document that enshrines the rights of every American and all those who aspire to be. That is why I intend to ensure that this copy of our Constitution will be available for all Americans and visitors to view and appreciate in our museums and other public spaces.”

The document was in private hands in the past, having last auctioned in 1988 for $165,000 by Dorothy Tapper Goldman’s late husband, S. Howard Goldman.

Griffin’s triumph over the group was interesting because he has been a vocal sceptic of the use and value of crypto assets.

Crypto Crowdfunding Fell Short

As reported by Blockchain.News, the auction drew widespread attention last week because of an attempt by the crypto coalition “ConstitutionDAO” to crowdfund a winning bid.

“ConstitutionDAO,” a group of more than 17,000 crypto investors, popularly as recognized as pulled together more than $40 million worth of Ether via a decentralized autonomous organization – a kind of computer protocol –earlier last week in a bid to win the auction.

The crypto group planned to seek a partner to publicly display the document (the printing of the constitution).

The group clarified based on frequently asked questions that the funds would be redeemable (providing anyone with an option for a refund) minus a transaction fee.

Since the group has lost the bid, it is now upon them to decide what will happen to all the cash they raised. However, some members shared plans to potentially allocate the funds towards future auctions.

Unlike an ordinary pool of investors, DAOs rely on crypto technology to track and validate participation in the group and to facilitate the inner workings of how to raise and distribute large amounts of cash.

Image source: CNBC

Crypto Hedge Fund Pangea Fund Receives $85m in Financing

Cryptocurrency hedge Fund Pangea Fund has raised $85 million to focus on a “long-only” strategy.

Pangea Fund Management was founded by Ryan Watkins, a former analyst at Messari Inc., and Daniel Cheung, who works at Jennison Associates LLC.

Ryan Watkins in an interview:

“Our thesis is that in the long run, there’ll be very few winners in each category. So for us, we’d much rather bet on some of the early winners we’re seeing.”

Investors include Bain Capital, ParaFi, Alameda Research, and others, USV co-founder Brad Burnham, Apollo Global Management co-founder Josh Harris, Terraform Do Kwon of Labs, Kyle Samani, partner of Multicoin Capital, and other angel investors participated in the investment.

Most cryptocurrency hedge funds currently focus on Bitcoin and Ethereum, as well as investments focused on early-stage projects.

However, what makes Pangea unique is its strategic focus on taking a long-term position among three to seven established tokens.

“The fund’s concentration in just a few tokens will also allow it to focus on supporting an important element of Decentralization: projects’ governance, “said Watkins

Hedge Fund Marshall Wace Forms Workforce, Focusing on Blockchain Investments

Investment firm Marshall Wace is forming a blockchain team to focus on investing in private blockchain-related companies.

The company has also hired William Benattar, who has made technology investments in UK property developer Nick Candy’s family office, to prepare for its crossover investment

The firm aggressively raised a new digital finance fund last July to invest in high-tech companies in areas, such as blockchain technology, digital payments and stablecoins.

Marshall Wace LLP is a hedge fund based in London, founded by Paul Marshall and Ian Wace in 1997. As of January 2022, its assets under management reach US$ 64 billion.

Marshall Wace is one of Europe’s foremost hedge fund managers specialising in global long/short equity with investment management offices in London; New York.

A survey conducted by PWC and Elwood Asset Management indicates that 47% of traditional hedge fund firms have entered or plan to enter the cryptocurrency market. The research surveyed 39 hedge fund firms in the first quarter of this year with a total of $180 billion in assets under management.

Brevan Howard, a European hedge fund asset management firm, has announced extending its reach into the cryptocurrency sector by forming a new crypto-focused division called BH Digital.

Meanwhile, cryptocurrency hedge Fund Pangea Fund raised $85 million to focus on a “long-only” strategy on Wednesday.

Singapore's Whampoa Group Raises $50M for Crypto Hedge Funds

According to Bloomberg, Singapore-based asset management firm Whampoa Group plans to raise $50 million for a crypto hedge fund and has announced plans to set up a venture capital fund to invest in digital assets.

According to early estimates, the company intends to set aside $10 billion for a cryptocurrency venture fund.

The Whampoa Group is a multi-family office co-founded by Amy Lee and Lee Han Shih. Amy Lee is the niece of Singapore’s founding Prime Minister Lee Kuan Yew. Both belonged to the extended family of Lee Kuan Yew, who served as the country’s first prime minister from 1959 to 1990.

Its CEO Shawn Chan said that Whampoa’s cryptocurrency hedge fund will adopt a market-neutral strategy to offset the volatility of cryptocurrencies, mainly focusing on bitcoin and ether.

But occasionally other cryptocurrencies are traded while securing a favorable risk-reward.

The $10 billion private venture capital fund, likely to launch next quarter, will invest in Web 3 early-stage startups.

The Whampoa Group is looking for strategic partners with regional family offices and some large Chinese internet companies.

Meanwhile, cryptocurrency hedge Fund Pangea Fund raised $85 million to focus on a “long-only” strategy in May.

Galois Capital Declares Half of its Funds is Stuck with FTX

Galois Capital, a crypto hedge fund that deals in over-the-counter trading has announced that almost half of its capital is trapped in FTX.

According to a Reuters news report, Kevin Zhou a Co-founder of Galois stated that the trapped fund is estimated at $100 million even though the company had initially pulled out some funds from the crypto exchange. He wrote to investors that he is deeply sorry about the situation as they didn’t see the 3AC situation coming. He added that it could take Galois a few years before it will recover from its present ordeal.

Galois Capital tweeted via the company’s official page that funds were not withdrawn using any Bahamian process as a significant amount is still stuck while responding to accusations that they transferred funds from FTX illegally by using Bahamian accounts. They also hinted that Galois does not have any debt, so it’s just their assets that took a hit.

“Galois is presently debating whether to continue operating normally, pursue an acquisition, or become a proprietary trading firm,” says Zhou.

The news comes after Galois had initially given suggestions on how FTX can overcome their financial crisis. Galois tweeted that FTX can apply a proportional debt haircut to all accounts, make a debt claim token in the style of Bitfinex for the amount of the haircut, and reduce staff while continuing to run FTX.

Crypto Exchanges Caught in the Web of FTX’s Crisis

Galois Capital is not the only crypto exchange that is experiencing disarray as a result of the fallout of the FTX exchange platform. BlockFi, a crypto lending exchange has recently put a hold on customers’ withdrawal following the financial crisis that has ensued with FTX.

BlockFi which was worth $3 million at one time announced earlier in the week that they will be putting a halt to withdrawals including deposits over a lack of uncertainty regarding issues with FTX. BlockFi had earlier in the year arranged a $680 million deal with FTX.US that included a $400 million credit facility and an option for FTX to purchase BlockFi.

SEC plans to propose new rule changes that could impact crypto firms

According to recent reports, the United States Securities and Exchange Commission (SEC) intends to propose new regulation changes this week that might have an effect on the kind of services that cryptocurrency businesses are permitted to provide their customers.

According to a report that was published on February 14 by Bloomberg, which cited “people familiar with the matter,” the securities regulator is working on a draft proposal that would make it more difficult for cryptocurrency companies to act as “qualified custodians” on behalf of their customers’ digital assets.

This might, in turn, have an effect on the many hedge funds, private equity companies, and pension funds who collaborate with cryptocurrency startups.

Those individuals who were quoted said that on February 15 a five-person SEC panel would decide on whether or not the plan will advance to the next level.

In order for the remaining members of the SEC to cast an official vote on the proposal, they will need to achieve a majority vote of three votes out of five. If the idea is accepted, it will be revised based on the input provided wherever required.

People who are aware with the situation have said that it is not obvious what particular modifications the United States Financial Watchdog is seeking. This is despite the fact that the SEC has been deliberating on what should be necessary to be a certified custodian of cryptocurrencies since March 2019.

According to Bloomberg, if the deal is confirmed, some cryptocurrency businesses may be required to relocate the digital asset holdings of their customers to another location.

According to the study, these financial institutions may be exposed to “surprise audits” on their custody ties or other ramifications. This information was included in the report.

After a story published on January 26 by Reuters said that the SEC may soon investigate Wall Street financial advisors over how they’ve given cryptocurrency custody to their customers, the news of the vote proposal that will be held on Wednesday comes as a surprise.

The Securities and Exchange Commission (SEC) has been quite busy in recent days dealing with Paxos Trust, the issuer of the Binance USD (BUSD) stablecoin. The SEC is of the opinion that Paxos Trust issued the cryptocurrency in the form of an unregistered security.

Paxos said that they were willing to “vigorously litigate” the matter if it came to it.

Hedge fund Galois Capital shuts down after FTX collapse

Galois Capital, a hedge fund that was one of the companies that lost money when FTX went bankrupt, has decided not to continue operating after seeing fifty percent of its holdings get stuck in the failing exchange. The decision has been made to wind down the fund and distribute whatever assets are left over to the original investors.

On November 12, 2022, the hedge fund acknowledged in a statement that it has large exposure to the FTX exchange. The statement was posted on the hedge firm’s official Twitter account.

A letter was sent to the fund’s investors informing them that all trading had been ceased and that the fund had rolled back its holdings, as stated in a story that was published in the Financial Times. Kevin Zhou, who was one of the co-founders of Galois Capital, issued an apology to the company’s investors and said that due to the gravity of the problem with FTX, they are unable to find a justification for continuing to run the company.

In addition to this, the hedge fund promised its investors that they would get ninety percent of the money that are not held hostage by the FTX exchange. The remaining 10% will be held indefinitely by the corporation until all outstanding issues have been resolved via dialogue.

In addition to these factors, Zhou has indicated that he is considering selling the hedge fund’s claims rather than waiting for a drawn-out bankruptcy procedure that may take up to ten years. The co-founder of Galois Capital asserts that purchasers of these claims have a greater ability to pursue claims in bankruptcy courts.

The bankruptcy of FTX resulted in the freezing of millions of dollars belonging to many companies, including New Huo Technology and Nestcoin. One of the numerous companies that has suffered losses as a result of the FTX scandal is Galois Capital, which has at least fifty million dollars in assets that are frozen on the exchange.

In the meanwhile, the biggest creditor to Mt. Gox has taken a strategy very similar to that of Galois Capital by opting for an early payment option rather than waiting for a drawn-out judicial procedure that may take many years to complete. Mt. Gox Investment Fund said on February 17 that it has made the decision to be paid in September rather than waiting any longer to receive its assets back.

Hedge Funds Battle to Survive After FTX Exchange Collapse

Some hedge funds were able to weather the storm and remain solvent despite being adversely affected by the failure of the FTX exchange, while others were forced to make the decision to liquidate their holdings and cease operations as a result of the financial crisis.

CoinShares, an institutional crypto fund manager, underlined the fact that the company remained “financially solid” in its fourth-quarter report for 2022. This was despite the fact that the company had to cope with the FTX crash at the end of the year. The fund also showed its successes, including its graduation to the principal market of Nasdaq Stockholm and its high levels of inflow into CoinShares physical exchange traded goods.

Following the filing of its bankruptcy petition, CoinShares said that assets worth more than $31 million were frozen on the FTX exchange. The management of the fund does not know for certain if they will ever be able to retrieve the monies or how much of the assets can be retrieved at this time.

During the course of the quarter, the company came to the conclusion that it would no longer maintain its CoinShares consumer platform. The company explained its decision in writing, stating that “Market circumstances gave birth to a scenario that did not enable us, with our present financial structure, to sustain a consumer activity that needed large upfront expenditure in marketing.”

The Chief Executive Officer of CoinShares, Jean-Marie Mognetti, said in a letter to investors that the failure of FTX “had a substantial effect” on the company’s ability to implement its algorithmic trading platform, HAL, in European markets. In spite of this, Mognetti also noted that the company will continue into 2023 with defined objectives, such as concentrating on increasing its digital asset management business and the institutional products it provides.

Galois Capital, a hedge fund, did not have the same level of success as CoinShares when it came to weathering the FTX storm. The fund announced to its investors on February 20 that it would be winding down its operations due to the losses that it sustained as a result of the collapse of FTX. The company made the executive decision to return the remainder of its cash to its investors and to sell its claims to purchasers who were better equipped to pursue bankruptcy claims.