NEW YORK: Global investors are scooping up stakes in cryptocurrency funds and companies, as they seek exposure to a sector many believe could withstand the fallout from the Russia-Ukraine conflict.
Research firm Fundstrat, in its latest note to clients, said venture capital (VC) buyers invested around US$4 billion (RM16.7 billion) in the crypto space in the last three weeks of February. VCs poured in another US$400 million to startups in the sector last week, data showed.
The VC investment is consistent with broad weekly inflows. Since the beginning of the year, weekly investments in the industry have been averaging anywhere between US$800 million and about US$2 billion, Fundstrat data showed.
New crypto funds also raised nearly US$3 billion over the last two weeks as of Friday, the most so far this year.
“The conflict in Ukraine has weaponised our financial and digital economy and really accelerated blockchain adoption,” said Paul Hsu, founder and chief executive officer of Decasonic, a US$50 million hybrid fund investing in both digital assets and venture capital. He added that there’s demand of up to US$200 million to invest in his fund.
“We are seeing a reallocation to crypto and blockchain away from real estate and bond funds, for instance, because of higher interest rates. I’ve seen this with my funds but unfortunately, because I’m closed-end, I cannot admit more funds nor investors,” Hsu said.
Refinitiv Lipper data showed that US investors pulled a net US$7.8 billion out of bond funds in the week to March 9.
Real estate funds saw net outflows of US$707 million in the same period, after posting outflows worth US$1.15 billion the previous week.
“Crypto native companies are still raising at very high valuations and many funding rounds are still oversubscribed,” said George Melka, chief executive officer at crypto broker SFOX. “In fact, crypto startup valuations are probably the highest I’ve seen.”
Bain Capital Ventures, a unit of private equity firm Bain Capital, for instance, announced early last week that it is launching a US$560 million fund focused exclusively on crypto-related investment.
Crypto assets have outperformed traditional risk-on assets such as stocks during the crisis. Bitcoin rose 12.2% last month, while ether gained 8.8%. Since bottoming on Feb 24 when Russia invaded Ukraine, the digital currencies have gained 14.5% and 13.5%, respectively, while the S&P 500 rose just 3.2%.
Crypto investment products and funds saw US$163 million in new institutional money in the two weeks to March 4, while inflows into blockchain equities totalled about US$15.6 million, according to data from asset manager CoinShares.
The inflows of US$127 million were the largest seen so far this year. Flows into the crypto sector turned positive in late January, after five straight weeks of outflows, CoinShares data showed.
Crypto fund returns have stabilised.
The BarclayHedge cryptocurrency traders index was down at 1.5% for the month of February, according to data posted yesterday, with 39 funds reporting or about 43% of the total crypto asset managers it tracks. In January the index fell nearly 13% and in December it fell 10%.
“There’s really no panic even with the Ukraine conflict,” said Joe DiPasquale, chief executive officer at BitBull Capital, which manages a crypto fund of funds and two hedge funds.
BitBull's two hedge funds, which employ market-neutral strategies, were up on the year, DiPasquale said, benefiting from the recovery of bitcoin and ether in the month of February.
“People are starting funds, encouraged by the appreciation in prices over the last couple of years,” he said. – Reuters
