‘Crypto winter’ terrifies hedge funds: Make no mistake!

Tram Ho

‘Crypto winter’ is the term for the gloomy period of the crypto market, when the prices of coins continuously fall and are difficult to recover for a long time.

This term is mentioned more and more after a series of bankruptcies of famous “players” in this field, such as Three Arrows Capital, Terra.

But a PwC annual report on global crypto hedge funds (Annual Global Crypto Hedge Fund Report 2022) released in June 2022 shows that, even as digital assets are seeing a lot of volatility, the Cryptocurrency hedge funds are also ‘proliferating’ at an increasingly rapid rate, with an estimated 300+ hedge funds operating in the sector.

What are the reasons why organizations still want to invest in digital assets (?!).

VietTimes would like to send to readers the views of Franz Bergmueller – CEO of digital bank SEBA Bank – posted on Barron’s on this content.

'Mùa đông crypto' làm chùn bước các quỹ đầu cơ: Đừng nhầm! - Ảnh 1.

‘Crypto winter’ terrifies hedge funds: Make no mistake!

Digital assets are at an inflection point. Institutional participation in this asset class is reaching unprecedented levels. This move can be seen as strange considering the cryptocurrency market decline we have seen, even though the bear market is unlike anything we have seen before.

Institutional players are now looking at the long-term benefits of investing in digital assets, despite the short-term fragility.

Over the summer of this year, a series of leading wealth management firms including Abrdn, Blackrock and Charles Schwab invested in digital assets. These developments represent a broader trend, with a wide range of investors seeking to approach the sector. According to a report released by PwC earlier this year, more than a third of traditional hedge funds are now investing in digital assets, nearly doubling from a year earlier.

This year is also the time when people see the collapse of a number of centralized financial companies, known as CeFi for short. Most of these financial firms are subject to little, if not no, regulation.

Leading platforms such as Celsius, Voyager and Vauld have all declared bankruptcy while it is unclear what will happen to customer assets. Investors who want to enter the sector now want transparency, asset security and protection of their deposits.

Although we understand that this is a fragile asset class, the demand is still there. However, the industry needs to address some key concerns in order for institutional investors to have confidence to enter and unlock the next phase of growth.

We can start from the CeFi lesson. The collapse of several CeFi platforms is a serious warning to investors.

While these platforms mimic traditional banks – but are blockchain-based – the lack of regulation or regulation over their operations makes this business model unsustainable. Every time the market shows signs of instability, this model has problems, and it is clear that some platforms do not have enough deposits to support customer withdrawals.

The failure of these platforms is a warning that a set of regulations is needed for institutional players to enter the digital asset sector on a large scale.

The world’s largest asset management firms that do not participate will certainly not enter markets that do not meet the basic financial requirements, or are not managed effectively. To encourage such companies to enter the digital asset sector, relevant authorities need to establish capital and liquidity requirements. They need to put in place standard deposit protections to serve investors and control them effectively.

Many investors have yet to receive their funds back to the bankrupt CeFi platforms. Due to shortcomings in the legal and regulatory framework for digital assets, it remains unclear when these investors will get their deposits back, or if so, how much they will get back. Authorities need to address these issues.

Some governments have started to take the first step towards digital assets: Switzerland and Singapore have launched two frameworks that are considered to be the most complete, providing clear regulations for parties involved in digital assets. this field. Many other countries have also started this process, with the desire to unlock the growth and innovation in the field of digital assets.

In June, the EU unanimously passed a set of laws governing digital assets. This code, “Marjets in Crypto Assets” (MiCa), sets forth common digital asset and infrastructure regulations applicable to the 27 member countries, and empowers the European Securities and Markets Authority. Europe imposes a ban or restriction on the operation of cryptocurrency platforms that do not have sufficient investor protection measures. This law will ensure that large institutional players can confidently invest in the digital asset sector.

Other leading financial centers are also keeping a close eye on the EU’s plans.

US President Joe Biden’s executive order on cryptocurrencies has pressured US regulators to coordinate the development of a comprehensive framework for the asset class.

Similarly, the UK has announced plans to become a global digital asset hub, in which the country’s Finance Ministry said it will develop a regulatory framework and soon announce a “market infrastructure framework”. finance” to facilitate innovative companies in the field.

Countries around the world can work together to come up with better sets of rules. Doing so will avoid causing friction in the financial infrastructure. The new regulations should also take into account the impact of CeFi bankruptcies and require greater transparency, stricter capital and liquidity requirements for participants.

The final piece is security. More than $2.4 billion in the crypto industry has been stolen in hacks since January this year. Investors need institutional-grade infrastructure to minimize the risk to their assets.

Much debate has focused on the legitimacy of management technologies specifically for organizations. Investors should look beyond technology when evaluating counterparties. Regular independent reporting on custodial solutions should be seen as an essential security requirement, while deposit protection will also aid in the process of returning client assets in the event of an accident. out problem.

As seen since CeFi’s demise, regulators also need to require participating companies to segregate assets in their balance sheets. The assets of investors using the counterparty without segregation are at risk of being lost in the event of a financial collapse.

It is clear that institutional participation in digital assets is entering a new growth phase.

The first steps towards developing a clear set of regulations, along with the availability of institutional-grade infrastructure, are encouraging investors to enter the sector with greater confidence.

Digital assets and associated infrastructure will play an important role in the future of financial services. While institutions are slowly adopting the sector, investors also want to make sure they are not left behind.

According to Barron’s

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Source : Genk