Institutional Investors Warm Up to Cryptos: What Do You Need to Know?
The idea of cryptocurrencies being solid investment vehicles is gaining ground among institutional investors. Per a recent report by Nickel Digital Asset Management, cited by CoinDesk, almost 82% of the institutional investors and wealth managers surveyed in the United States, the U.K., France, Germany and the UAE expect to increase their exposure to crypto and digital assets by 2023.
Moreover, four out of 10 respondents are anticipated to be aggressive in raising their holdings. The increase in exposure will primarily be driven by long-term capital appreciation prospects of cryptos and digital assets, as cited by 58% of the survey respondents.
Markedly, cryptocurrencies like Bitcoin are a good hedge against the pandemic-induced weakness in traditional currencies, including the U.S. dollar as well as inflation. Further, endorsements by institutional investors like Tesla TSLA CEO Elon Musk as well as Paul Tudor Jones and Ray Dalio makes 37% of the survey respondents confident in investing in cryptocurrencies.
Elon Musk has been one of the proponents of cryptocurrencies through his support for bitcoin and dogecoin. Although he abandoned bitcoin due to the huge power consumption and resultant pollution issues, Musk continues to support the dogecoin through memes and tweets, thereby boosting its price. The joke coin is currently up 4,865.65%, year to date.
However, the pollution issue prompted Tesla to reject bitcoins as payment for its cars in May. The EV giant is likely to resume transaction only if the currency’s mining is done using 50% of renewable energy.
Tesla’s ban, along with the regulatory crackdown in China, as well as a more hawkish Fed tone dealt a blow to bitcoin, which is currently down 46.3% from the year’s high of $64,829.14 hit on Apr 14.
The bitcoin collapse has also dragged down crypto-oriented stocks. Since Apr 14, Marathon Digital MARA and Riot Blockchain RIOT, both Zacks Rank #5 (Strong Sell) stocks, are down 30.9% and 29.4%, respectively. Moreover, Coinbase COIN and MicroStrategy MSTR, both Zacks Rank #3 (Hold) stocks, are down 28.3% and 13.8%, respectively.
Notably, Musk and Tesla’s focus on using green energy for mining has apparently influenced a majority of investors, per a latest Investing.com survey, as 72% of investors now favor green cryptocurrencies like ripple and cardano.
Hedge Funds Are Most Enthusiastic About Crypto
Cryptocurrencies are being highly valued by hedge fund managers. According to a latest FT article, which cited a survey of 100 hedge fund CFOs by Intertrust, hedge funds are projected to increase their exposure to cryptocurrencies by 2026, holding an average of 7.2% of their assets. This will equate to roughly $312 billion of assets in cryptos across sectors, with 17% of the survey respondents expected to hold more than 10% in cryptocurrencies.
Hedge fund pioneer Paul Tudor Jones has expressed his optimism for bitcoin as a solid investment vehicle to protect wealth over the long term. Jones considers the digital currency as a hedge against inflation and expects to increase his bitcoin holdings to 5% of assets from the current 1-2%. Moreover, his company Tudor Investment has custodial ties with Coinbase and Bakkt.
Coinbase also has a custodial relationship with Daniel Loeb’s Third Point LLC. The company held $122 billion of institutional assets as of Mar 31, 2021.
Another hedge fund billionaire and Bridgewater Associates founder Ray Dalio considers bitcoin attractive as a savings instrument. Once a skeptic of the digital currency, Dalio now owns some bitcoin and believes it to be a better investment than bonds.
Further, according to Skybridge Capital’s Anthony Scaramucci, bitcoin is set to become a “replacement” for gold. Despite the digital currency’s volatility, Scaramucci is optimistic over its growth prospects, as per CNBC.
Moreover, Alan Howard, co-founder of the Brevan Howard hedge fund, reportedly plans to invest up to 1.5% of its core fund in cryptos. Howard has been actively investing in crypto start-ups including Kikitrade, Copper, CoinShares and Ledn.
Crypto Volatility Makes Equities Safer Bets
Undoubtedly, cryptocurrencies are high-risk investments and not everybody’s forte due to their inherent volatility. Although growing institutional investor base might provide some sort of stability to the crypto market, crypto enthusiasts are advised to keep crypto exposure minimal (1-2% of portfolio) to avoid portfolio damage from the alarming price swings.
In this scenario, investors can use stocks to gain exposure in cryptocurrencies and the underlying blockchain technology. Investors can focus on stocks like NVIDIA NVDA and Square (SQ) to gain exposure without taking undue risk.
NVIDIA Corporation Price and Consensus
Remarkably, NVIDIA is benefiting from strong demand for its GPUs among cryptocurrency miners, while Square is facilitating bitcoin transactions. Currently, both NVIDIA and Square carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Square, Inc. Price and Consensus
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NVIDIA Corporation (NVDA): Free Stock Analysis Report
Tesla, Inc. (TSLA): Free Stock Analysis Report
MicroStrategy Incorporated (MSTR): Free Stock Analysis Report
Marathon Digital Holdings, Inc. (MARA): Free Stock Analysis Report
Riot Blockchain, Inc. (RIOT): Free Stock Analysis Report
Coinbase Global, Inc. (COIN): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.