In this article we discuss the 10 best cryptocurrencies to invest in according to hedge funds. If you want to skip our detailed analysis of these currencies, go directly to the 5 Best Cryptocurrencies to Invest in According to Hedge Funds.
Cryptocurrencies are all the buzz around Wall Street as top hedge fund billionaires turn from doubters to dabblers in the crypto market amid the threat of inflation and an escalating debt crisis that is looming large over the post-pandemic stock market. A sudden drop in the prices of cryptocurrencies and related stocks over the past few weeks has also increased hedge fund interest around digital assets that can now be bought at relatively lower costs and promise significant upside potential in both the short and long term economic outlooks.
There are several hedge funds that have publicly disclosed their crypto holdings in the recent past, including ARK Investment Management, led by Cathie Wood, Tudor Investment Corp, run by Paul Tudor Jones, Bridgewater Associates, managed by Ray Dalio, Skybridge Capital, steered by Anthony Scaramucci, Brevan Howard, founded by Alan Howard, Duquesne Capital, overseen by Stanley Druckenmiller, Renaissance Technologies, piloted by Jim Simons, and Fortress Investment Group, managed by Michael Novogratz.
The latest regulatory filings reveal that ARK Investment Management holds 639,069 units of Grayscale Ethereum Trust and more than 8 million shares in Grayscale Bitcoin Trust, one of the largest institutional crypto holdings globally worth close to $450 million. In addition to owning cryptocurrencies, ARK also has stakes in publicly-traded firms bullish on crypto like Tesla, Inc. (NASDAQ: TSLA), Twitter, Inc. (NYSE: TWTR), Square, Inc. (NYSE: SQ), and PayPal Holdings, Inc. (NASDAQ: PYPL), among many others.
Companies like Tesla, Inc. (NASDAQ: TSLA), Twitter, Inc. (NYSE: TWTR), Square, Inc. (NYSE: SQ), and PayPal Holdings, Inc. (NASDAQ: PYPL) accept crypto transactions on their platforms and encourage the wider adoption of digital currencies.
In addition to these firms, crypto exchange platform Coinbase Global, Inc. (NASDAQ: COIN) has also gained prominence in recent weeks, with Tudor Investment Corp establishing custodial ties with Coinbase Global, Inc. (NASDAQ: COIN) in the previous quarter.
Jones has dubbed Bitcoin, the most popular cryptocurrency, a top hedge against inflation, and reportedly bet close to 2% of his $7 billion in assets under management on Bitcoin.
Connecticut-based Bridgewater Associates has a similarly bullish stance on Bitcoin, with chief Ray Dalio, who manages more than $100 billion in assets, claiming last month that the US dollar is on the verge of devaluation and Bitcoin would be a good savings vehicle in the uncertain environment, disclosing his direct ownership in Bitcoin during a media interview.
In January, another top hedge fund, Skybridge Capital, had launched a Bitcoin-focused fund for investors looking to capitalize on crypto gains. The $3 billion fund had started the crypto offering with $310 million in assets under management. Brevan Howard and Renaissance Technologies have also been long-term admirers of crypto bets. Bloomberg reported in April that Brevan planned to invest 1.5% of $5.6 billion in assets on crypto, while Renaissance has increased crypto-related holdings by $140 million in the past few months by buying coin mining stocks.
Jim Simons of Renaissance Technologies
Duquesne Capital, run by Stanley Druckenmiller, and Fortress Investment Group have joined these hedge funds in the race for crypto in recent weeks, with Druckenmiller publicly admitting a $20 million investment in Bitcoin last week and saying that he regretted not buying the cryptocurrency earlier.
Fortress Investment Group chief Michael Novogratz is bullish on crypto too, and expects the technology to hit $3 trillion in market capitalization within the next few years. Novogratz has been a consistent backer of the rise of crypto and fintech from the early years, unlike most other fund managers.
The wider acceptance of crypto in the hedge fund industry is a telltale sign of the changes sweeping across the finance world. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context in mind, here is our list of the 10 best cryptocurrencies to invest in according to hedge funds. In this list we included the cryptocurrencies that are getting the most attention from hedge fund billionaires and investment firms.
Best Cryptocurrencies to Invest in According to Hedge Funds
Stellar is a blockchain-based open network that primarily markets itself as a crypto solution for enterprise transactions. Stellar is placed tenth on our list of 10 best cryptocurrencies to invest in according to hedge fund billionaires. Stellar offers companies the ability to make large transactions at low costs, thereby saving these firms a lot of money that would otherwise go to intermediaries like banks and other finance institutions. The low cost nature of the Stellar network also makes it a prime choice of cross-border crypto transactions.
On April 26, Swiss fintech firm 21Shares AG said it would list the Stellar cryptocurrency on the Swiss stock exchange through an exchange-traded product with a low yearly base fee. The company said that interest in Stellar had increased amid an increase in the number of institutional holdings into crypto assets, underlining that the demand for crypto-related exchange-traded products had soared by 200% since the first quarter of 2021.
While many big companies jump on the crypto bandwagon, American retail giant Amazon.com, Inc. (NASDAQ: AMZN) has so far not allowed users to checkout with cryptocurrencies, though many believe that the company will relent soon. However, Amazon.com, Inc. (NASDAQ: AMZN) does accept crypto-linked gift cards for use on their platform.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. (NASDAQ: AMZN) with 3.3 million shares worth more than $10 billion.
Just like Tesla, Inc. (NASDAQ: TSLA), Twitter, Inc. (NYSE: TWTR), Square, Inc. (NYSE: SQ), PayPal Holdings, Inc. (NASDAQ: PYPL), and Coinbase Global, Inc. (NASDAQ: COIN), Amazon.com, Inc. (NASDAQ: AMZN) is one of the best crypto stocks to invest in according to hedge fund billionaires.
“We purchased Amazon in February 2021, which accounts for 5% of the Portfolio’s weighting. For most of the last decade, Amazon did not meet our guardrails. We also did not have enough visibility into future free cash flow margins to indicate that the company would sustainably meet our guardrails and, relatedly, if valuation supported the double-digit annualized returns we seek. We now believe we have that visibility.
In 2008, almost all of Amazon’s revenue and operating profits came from its e-commerce business. Amazon Prime and Amazon Web Services (AWS) were new and relatively small back then. The company had roughly 5% operating profit margins overall, entirely from the e-commerce business. In 2009, the company began harvesting its retail business profits to accelerate investment in its distribution and logistics infrastructure globally and very heavily build out and scale AWS data centers. The company’s return on equity began to decline at that time and turned negative for three full years from mid-2012 to mid-2015 (margins and free cash flow declined similarly). So, beginning in 2010 and continuing to mid-2018, Amazon’s business was outside our guardrails. We chose to stick to our guardrails and not own Amazon.
Amazon’s profit drivers have changed quite dramatically over the years. Starting in the back half of 2018, Amazon came back above our hurdles. Revenue generation overcame ongoing heavy investments in areas such as delivery infrastructure, data center infrastructure, and shipping.
Our research suggests that today, after considering cost allocation, Amazon’s underlying profit drivers from higher-margin AWS and Advertising could grow much faster than its low-margin e-commerce business (excluding Prime), its historical driver of revenues and operating profits.
Amazon Prime, AWS, and Advertising together account for only about 20% of revenue today, but we believe over 150% of operating profits. Looking forward, growth higher-margin businesses means Amazon’s total margins and profit dollars could rise quite dramatically.
It is important to note that Amazon proved to be an exception to our guardrails. Based on our experience, very few companies that remain outside our guardrails for an extended period operate from a position of competitive strength but rather, from a position of competitive pressure. Today, we feel we have better visibility into the future earnings growth and margins from AWS and Advertising and believe these could drive 30%+ annual earnings growth for the next five years. Even with significant P/E multiple compression, we would still expect double-digit investment returns.”
9. Binance Coin
Binance Coin is mainly used only for transactions on the Binance cryptocurrency exchange platform. It is ranked ninth on our list of 10 best cryptocurrencies to invest in according to hedge funds. Since the Binance crypto exchange is one of the largest digital exchanges in the world, the Binance Coin has become popular globally. The coin uses a blockchain-based network built on the proof-of-stake crypto mechanism. It has a maximum limit of 200 million tokens, and the exchange offers trading discounts to encourage wider adoption of the currency.
On March 2, the Binance exchange announced that they had formed a partnership with Multicoin Capital, a crypto-focused hedge fund. The announcement cemented the place of Binance as one of the premier cryptocurrencies as Multipoint Capital is one of the biggest success stories of crypto that has worked with Ribbit Capital, Union Square Ventures, Andreessen Horowitz, and Craft Ventures, among other top venture capital firms.
The incredible rise of cryptocurrencies like Binance Coin is facilitated by companies like American hardware firm NVIDIA Corporation (NASDAQ: NVDA) that manufacture and sell powerful computing chips which make mining currencies easier. NVIDIA Corporation (NASDAQ: NVDA) stock has climbed to record highs amid a global chip shortage in recent weeks.
At the end of the first quarter of 2021, 80 hedge funds in the database of Insider Monkey held stakes worth $6.2 billion in NVIDIA Corporation (NASDAQ: NVDA), down from 88 in the preceding quarter worth $8.6 billion.
Just like Tesla, Inc. (NASDAQ: TSLA), Twitter, Inc. (NYSE: TWTR), Square, Inc. (NYSE: SQ), PayPal Holdings, Inc. (NASDAQ: PYPL), and Coinbase Global, Inc. (NASDAQ: COIN), NVIDIA Corporation (NASDAQ: NVDA) is one of the best crypto stocks to invest in according to hedge funds.
“NVIDIA Corp. is the dominant supplier of Graphics Processing Units (GPUs) worldwide. NVIDIA’s GPUs are at the intersection of a number of important computing trends including the movement to the Cloud, artificial intelligence, autonomous vehicles, edge computing, gaming, and more. We previously owned NVIDIA and sold it in the third quarter of 2020 as the price to value gap closed and our margin of safety was reduced. As with all our MVP companies, we continued to follow NVIDIA closely. Since that time, NVIDIA reported excellent results and its value has compounded rapidly. The technology selloff at the beginning of the year negatively affected the stock price while our estimate of NVIDIA’s value per share increased. This happy combination of events created a margin of safety and an opportunity to once again add NVIDIA to the portfolio.”
Tether is a blockchain-based cryptocurrency launched in 2014 whose value is tied to the US dollar. It is placed eighth on our list of 10 best cryptocurrencies to invest in according to hedge funds. Tether is one of the most popular stablecoins, a term used to describe currencies that aim to control price volatility by pegging their value to an external reference point. Tether is also popular because it is easier to convert it into regular fiat currency and vice versa because it is closely linked to the US dollar.
Hedge fund interest in Tether has surged amid the volatility in the prices of coins like Bitcoin and Ethereum. Since the value of Tether is tied to the US dollar, the cryptocurrency is more stable in terms of price than other coins. Timothy Massad, a former Commodity Futures Trading Commission chief, has highlighted the importance of stablecoins like Tether to the wider crypto market in an opinion piece for Bloomberg, saying that investors should be wary of the value of Tether falling below $1, likening it to the Lehman Brothers crash of the 2008 financial crisis for the crypto world.
As cryptocurrencies become wildly popular, mainstream payment firms like Mastercard Incorporated (NYSE: MA) have started to accept crypto transactions on their networks, possibly a huge step in the wider adoption of these currencies. Mastercard Incorporated (NYSE: MA) recently partnered with a finance firm to offer crypto-capable payment cards in Western Europe.
Out of the hedge funds being tracked by Insider Monkey, Virginia-based investment firm Akre Capital Management is a leading shareholder in Mastercard Incorporated (NYSE: MA) with 5.8 million shares worth more than $2 billion.
Just like Tesla, Inc. (NASDAQ: TSLA), Twitter, Inc. (NYSE: TWTR), Square, Inc. (NYSE: SQ), PayPal Holdings, Inc. (NASDAQ: PYPL), and Coinbase Global, Inc. (NASDAQ: COIN), Mastercard Incorporated (NYSE: MA) is one of the best crypto stocks to invest in according to hedge fund billionaires.
“While consumers resumed much of their spending by summer, what and how they used their Visas and Mastercards changed. For obvious reasons, people shifted to contactless payments—one of the Covid-era changes we think is permanent—and replaced travel purchases with online shopping and food delivery. Consumers spent more on their debit cards and less on their credit cards; Visa and Mastercard make more per transaction on the latter. They also make more on cross-border transactions that come mostly from international travel, which ground to a halt early in the pandemic. Visa’s and Mastercard’s earnings per share fell by 7% and 16%, respectively, compared to their usual mid-teens growth. We’re not too worried, and we think they’ll catch up nicely in the post-vaccine world. Visa’s stock returned 17.1% and Mastercard’s 20.2%.”
Cardano, released in 2015, is a blockchain-based cryptocurrency. It is ranked seventh on our list of 10 best cryptocurrencies to invest in according to hedge funds. The currency was developed as a spin-off of Ethereum, the second most popular cryptocurrency in the world. It uses a proof-of-stake method for consensus and is an open source and decentralized platform that was built after years of dedicated research, making it one of the most sought-after crypto projects in terms of long term value.
Cardano is one of the alternate crypto coins that stand to benefit from the fall in price of Bitcoin and increased hedge fund interest in a more diverse crypto portfolio that would potentially shield them from price volatility that is associated with the more expensive crypto options. In February, Dubai-based FD7 Ventures was reportedly exploring the purchase of Cardano as an alternate to a $750 million investment in Bitcoin.
Companies such as American tech firm DocuSign, Inc. (NASDAQ: DOCU) have played a huge part in building trust around crypto transactions in the business world. The firm, which markets electronic contract management solutions and boasts an incredibly diverse range of clients, has accepted crypto payments since 2015.
At the end of the first quarter of 2021, 60 hedge funds in the database of Insider Monkey held stakes worth $3.2 billion in DocuSign, Inc. (NASDAQ: DOCU), down from 67 in the previous quarter worth $4.2 billion.
Just like Tesla, Inc. (NASDAQ: TSLA), Twitter, Inc. (NYSE: TWTR), Square, Inc. (NYSE: SQ), PayPal Holdings, Inc. (NASDAQ: PYPL), and Coinbase Global, Inc. (NASDAQ: COIN), DocuSign, Inc. (NASDAQ: DOCU) is one of the best crypto stocks to invest in according to hedge funds.
In its Q3 2020 investor letter, Wasatch Core Growth Fund, an investment management firm, highlighted a few stocks and DocuSign, Inc. (NASDAQ: DOCU) was one of them.
“We recently liquidated our shares of DocuSign, Inc. (DOCU), which offers e-signature software that enables businesses and individuals to digitally prepare and execute agreements. Utilization of the software spiked during the pandemic and the stock was an excellent performer, propelling the company’s market capitalization to over $40 billion. While we still like the company, the valuation set a higher bar for the future. With the proceeds of our DocuSign sale, we rotated into what we viewed as more reasonably priced names.”
6. Bitcoin Cash
Bitcoin Cash is a Bitcoin spinoff that has become so popular that it is rivaling other standalone digital currencies in terms of value on the market. It is placed sixth on our list of 10 best cryptocurrencies to invest in according to hedge funds. Bitcoin Cash is a version of Bitcoin with improved scalability options, meaning transactions are faster on this network. The currency came into being as a result of some disagreement between developers and miners into the underlying Bitcoin code.
Brian Kelly, a renowned market expert and the founder of BKCM LLC, an investment firm focused on digital currencies, has called Bitcoin Cash a must-have cryptocurrency. In 2019, he told news media in the US that coin miners in the US were discussing setting up a fund from a fraction of their mining proceeds solely dedicated to Bitcoin Cash. He said that the fund would aid the cryptocurrency in gaining value on the open market.
Another technology company that has been instrumental for the success of the crypto industry in recent years is American firm International Business Machines Corporation (NYSE: IBM). In addition to developing powerful machines for coin mining, the company also offers a cloud service dedicated to the development of new blockchain-based digital currencies.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Arrowstreet Capital is a leading shareholder in International Business Machines Corporation (NYSE: IBM) with 3.6 million shares worth more than $482 million.
Just like Tesla, Inc. (NASDAQ: TSLA), Twitter, Inc. (NYSE: TWTR), Square, Inc. (NYSE: SQ), PayPal Holdings, Inc. (NASDAQ: PYPL), and Coinbase Global, Inc. (NASDAQ: COIN), International Business Machines Corporation (NYSE: IBM) is one of the best crypto stocks to invest in according to hedge funds.
In its Q2 2020 investor letter, Distillate Capital, an investment management firm, highlighted a few stocks and International Business Machines Corporation (NYSE: IBM) was one of them. Here is what the fund said:
“AT&T and IBM exited the portfolio as they no longer met the quality criteria for inclusion with AT&T exceeding the debt limit and IBM falling out due to deteriorating long-term fundamental stability.”
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Disclosure: None. 10 Best Cryptocurrencies to Invest in According to Hedge Funds is originally published on Insider Monkey.