It is common knowledge for all those who are completely familiar with the cryptocurrency sector, that institutional investors and hedge funds largely stay away from its sector. The crypto sector is primarily driven by individual activity and retail investors. Among institutional investors, it will be necessary to avoid betting on hedge funds and crypto as the situation is prompting a lot of people to question. Why do hedge-fund managers avoid investing in digital currencies? We don’t have a single answer to this question, but rather a set of factors that are related to each other. However, the main factor in this is understood to be high volatility, let’s understand it better. If you are interested in bitcoin trading check the lesser known trends of 2021 in cryptocurrency .
Bitcoin and other cryptocurrencies are known only for their high volatility, and this is the main reason for their popularity. It swings up and down in a relatively short period as compared to all those institutional investors. For hedge funds that also take risky bets. Due to its limited supply and the lack of a central banking institution to control it, bitcoin sees fairly high volatility, leaving it at the mercy of all those scattered holders. Holders in this are decentralized individuals or entities that never work in tandem with each other. There are all kinds of ways to do this, in which the price of bitcoin keeps swinging up and down due to daily chaos. Due to the high volatility, hedge fund managers tend to shy away from bitcoin because they overestimate the risk involved. There are other important reasons why fund managers have always wanted to avoid investing in cryptocurrencies.
- There are some dissenting opinions on and with cryptocurrencies, but at the same time investment decisions are made with the fund manager, which is why it boils down to personal feelings. Some fund managers may dislike subjective opinions of the idea of cryptocurrencies, regardless of the investment potential. Some people think that it is like a bubble but some people believe that it is a “pump and dump” scheme. Some also believe that it does not provide you with good utility. If someone dislikes cryptocurrencies then they can refuse to invest in them.
- The governing authorities have some strict rules, primarily because fund managers sell bitcoin and other cryptocurrencies. Its decentralized nature is the reason why cryptocurrencies have become so popular because of the absence of rules. This, along with the lack of regulation, helps make it susceptible to activities that would be illegal for regulated securities such as bonds and stocks. There are some activities of “pumping and dumping” that give an unfair advantage to malicious actors to the merchants associated with it. Your cryptocurrency can disappear if anything goes wrong, so no insurance or coverage is offered if it lacks firm regulations. For example, suppose if a regulated broker is hacked, the chances of your assets being stolen increase. For this situation, compulsory insurance is taken from the government or broker to cover those losses. If the property is stolen with a non-regulated exchange, you may have to say goodbye to your coins.
- Hedge funds are often used to start trading large amounts of assets and can do the same with crypto. The adoption of bitcoin and other cryptos will be relatively new, which is why many trading platforms do not support them. Some platforms have their plans, some have left the fund managers, Whichever trading platform you are looking to start cryptocurrency trading with some limited options to choose from. Software vendors believe hedge funds are the opposite of trading cryptocurrencies.
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