As Russia-Ukraine crisis escalates, Investors turn to crypto funds

As Russia-Ukraine crisis escalates, Investors turn to crypto funds

 

Investors are flocking to crypto funds as the Russia-Ukraine crisis worsens. Global investors are buying cryptocurrency funds and firms in order to gain exposure to a sector that many feel can weather the consequences of the Russia-Ukraine crisis.

In a recent letter to investors, research firm Fundstrat stated that venture capital (VC) purchasers invested roughly $4 billion in the crypto market in the final three weeks of February. Last week, VCs invested another $400 million in the sector's start-ups, according to data.

VC investment follows a pattern of large weekly inflows. Fundstrat data has shown weekly investments in the business have ranged from $800 million to $2 billion since the beginning of the year. As of Friday, new crypto funds had raised roughly $3 billion in the last two weeks, the largest so far this year.

“The conflict in Ukraine has weaponized our financial and digital economy and really accelerated blockchain adoption,” said Paul Hsu, founder and chief executive officer of Decasonic, a $50-million hybrid fund investing in both digital assets and venture capital. He added that there was a demand for up to $200 million in investments in his fund.

“For instance, we are seeing a re-allocation 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 or investors, “Hsu said.

According to Refinitiv Lipper data, U.S. investors withdrew a net $7.8 billion from bond funds in the week ending March 9. In the same time period, real estate funds experienced net withdrawals of $707 million, down from $1.15 billion the week before.

“Crypto native companies are still raising money 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,” Melka concluded.

For example, Bain Capital Ventures, a subsidiary of private equity company Bain Capital, revealed early last week that it was launching a $560 million crypto-focused fund.

During the financial crisis, crypto assets outperformed traditional risky investments like stocks. Last month, bitcoin climbed 12.2 percent, while ether gained 8.8 percent. Since bottoming on Feb. 24, when Russia invaded Ukraine, digital currencies have gained 14.5 percent and 13.5 percent, respectively, while the S&P 500 (.SPX) has gained only 3.2 percent.

According to data from asset management company CoinShares, crypto investment products and funds received $163 million in new institutional money in the two weeks leading up to March 4, while inflows into blockchain equities reached roughly $15.6 million.

The $127 million inflows were the most so far this year. In late January, CoinShares statistics showed that after five weeks of outflows, inflows into the crypto market turned positive in late January.

According to statistics released on Monday, the BarclayHedge cryptocurrency trader index was down 1.5 percent in February, with 39 funds reporting, or roughly 43 percent of the total crypto asset managers. In January, the index dropped over 13%, and in December, it dropped 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.

DiPasquale said BitBull's two hedge funds, which employ market-neutral strategies, were up on the year, 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.