The means through which you can earn money is constantly changing. Earlier it was through investments or even keeping your money with the bank to receive fixed interest. However, the boom in cryptocurrencies definitely pushed many to reevaluate their backup when it came to fiat money. Over the last few years, many were looking at crypto as a financial alternative to safeguard wealth. And who, better than the hedge-funds to explain this changing narrative.
Fiat Wealth, Crypto Wealth, and Hedge Funds
A recent report from Wall Street Journal noted that the cash-rich people of the world were betting on crypto. These included the biggest names in the hedge fund like Alan Howard, co-founder of Brevan Howard Asset Management LLP, and Paul Tudor Jones, the billionaire who runs Tudor Investment Corp., who were expanding their crypto trading.
Howard launched a crypto hedge fund in January and plans to invest in the direction of Bitcoin, Ethereum, and other crypto-assets. Additionally, it is also searching for arbitrage between currencies. Brevan Howard has a new crypto division, BH Digital that was created in September 2021. IT managed over $250 million and has 12 portfolio managers. Furthermore, Howard has investments in crypto, blockchain, and digital token businesses.
On the other hand, Paul Tudor Jones has been filling his bags with cryptocurrencies as a means to protect against rising inflation. Similarly, large New York hedge funds like Hudson Bay Capital Management LP, worth $15 billion, saw profits multiply trading cryptos along with other large firms.
It was clear from the above information that the people in the center of the money-making business were well aware of the history of cash and its future. Some of them were once staunch supporters of physical money or fiat, but an evolving macro-economic structure is leading to further asset diversification. The central idea of incurring profits remains the same.
It’s a good thing, isn’t it? – People getting informed of cryptocurrencies and participating in the market?
Sure, but it also highlights the financial gap that exists in the world.
The beginning of crypto was from fundamental roots, right? The idea was to alienate centralization and middlemen, enabling people to be responsible for their money. However, the wealth gap is evident in the market, and with the shrewd knowledge limited to a few, several regular investors missed their chance at significant crypto opportunities.
When Bitcoin’s value jumped to $20,000 in 2017, it sparked the first big wave of adoption. Now when the digital asset dropped from $69,000 in 2021, people are not just adopting crypto but understanding different means to invest in crypto assets. The 2020 COVID-19 pandemic did force people to look into different forms of investments apart from the traditional forms. However, as the impact of the pandemic stressed the traditional financial system, people across the world understood the cons of centralization.
Once again, the run to fill the bags with cryptos began. In time, inflation was rising and has reached a level worrying to people. Per reports, US inflation has accelerated last month to a new four-decade high, showing the intensity of upward pressures on consumer prices even before Russia’s war on Ukraine sent commodity prices from oil to wheat soaring.
Reports added,
“The consumer price index (CPI), due out from the Labor Department’s Bureau of Labor Statistics at 8:30 a.m. ET on Thursday, is expected to show that the inflation rate was 0.8% in February, or 8% over the past 12 months. That would be the highest level since 1982, and faster than the 0.6% monthly clip reported for January.”
With Bitcoin playing the role of a hedge against inflation, we may see its value communicate the sentiment of the US market. However, Bitcoin is also falling behind as a hedge in the current market conditions. But with war waging in one side of the world, this lag was a given.
Cryptocurrency regulations are coming
Nevertheless, America is trying to be the first mover to get in as a whole in crypto and try and mitigate risks and support technology. Yesterday, the President of the United States, Joe Biden signed a crypto executive order directing federal agencies to coordinate their efforts to draft crypto regulations. This would place a level of accountability on the crypto businesses at the same time awarding a sense of security to investors.
With cryptocurrency coming under the radar of the authorities, many big players have already made their move. This would have inadvertently forced the regulators to focus on crypto as a lot of money was suddenly being diverted to this new stream. However, what still lacks is the safety net for retail investors. Although the big players along with the regulators and the governments were able to navigate through the 2008 financial crisis, many commoners were stuck with bad debts.
So what if we are faced with another macro-economic catastrophe?
When the market blows up everyone rushes for cover. However, those with liquidity in their hands, wait to take advantage of the dip. This was evident when Bitcoin took a tumble in March 2020 along with the stock market and became the first digital asset to recover, following which it also hit an all-time high. If this was achieved all within a year, while the world was seeing a pandemic, inflation, a war, and a rise of social unrest around numerous cities, we can only imagine the reach of the wealthy when there we face another such instance.
Cryptocurrency strives to bridge the financial gaps between the banked and the unbanked. While it may be able to do so, the gap between the top 1% and the rest is still large. Cryptocurrencies may serve as a third or even fourth safety net for those with cash, but for many others, it still may remain just easy disposable income.