Investors turn to crypto funds and firms as Russia-Ukraine crisis escalates

NEW YORK, March 14 (Reuters) – Global investors are taking stakes in cryptocurrency funds and companies as they seek exposure to a sector many believe can withstand the fallout from the conflict between Russia and Ukraine.

Research firm Fundstrat, in its latest note to clients, said venture capital (VC) buyers invested nearly $4 billion in the crypto space in the last three weeks of February. The data showed that venture capital pumped another $400 million into startups in the sector last week.

Venture capital investment corresponds to broad weekly flows. Fundstrat data showed that since the beginning of the year, average weekly investments in the industry have been anywhere between $800 million and about $2 billion.

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New crypto funds have also raised nearly $3 billion in the past two weeks as of Friday, the most 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 CEO of Decasonic, a $50 million hybrid fund that invests in both digital assets and venture capital. He added that there is a request of up to $200 million to invest in his fund.

“We are seeing a reallocation of cryptocurrency and blockchain away from real estate and bond funds, for example, due to higher interest rates. I’ve seen this with my money but unfortunately, because I am locked out, I can’t accept more money nor investors,” Hsu said.

Refinitiv Lipper data showed that US investors pulled $7.8 billion from bond funds in the week ending March 9. read more

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Real estate funds saw net outflows of $707 million in the same period, after recording outflows of $1.15 billion in the previous week. Read more

“Crypto-origin companies are still valuations very high and several funding rounds are still too oversubscribed,” said George Milka, CEO of crypto broker SFOX. “In fact, the crypto startup ratings are probably the highest I’ve seen.”

Bain Capital Ventures, a unit of private equity firm Bain Capital, for example, announced early last week that it was launching a $560 million fund focused exclusively on crypto-related investing.

Crypto assets have outperformed traditional riskier assets such as stocks during the crisis. Bitcoin is up 12.2% last month, while ether is up 8.8%. Since bottoming out on February 24 when Russia invaded Ukraine, cryptocurrencies are up 14.5% and 13.5%, respectively, while the S&P 500 index (.SPX) It only rose 3.2%.

Capital flows, hedge fund returns

Crypto products and funds saw $163 million in new institutional money in the two weeks to March 4, while inflows into blockchain stocks totaled about $15.6 million, according to data from asset manager CoinShares.

The $127 million inflow was the largest seen this year so far. CoinShares data showed that inflows into the crypto sector turned positive in late January, after five consecutive weeks of outflows.

Crypto fund returns have stabilized.

The BarclayHedge index of cryptocurrency traders is down 1.5% for the month of February, according to data published on Monday, reporting 39 funds, or about 43% of all crypto asset managers it tracks. The index fell in January by about 13 percent and in December it fell by 10 percent.

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“There is really no panic even with the conflict in Ukraine,” said Joe Dipascual, CEO of BitBull Capital, which operates one cryptocurrency fund and two hedge funds.

DiPasquale said that BitBull’s two hedge funds, which use market-neutral strategies, were higher throughout the year, benefiting from the recovery of bitcoin and ether in February.

“People started the boxes, encouraged by the price hikes over the past two years,” he said.

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(Reporting by Gertrude Chavez-Dreyfus) Editing by Alden Bentley and Nick Czyminski

Our criteria: Thomson Reuters Trust Principles.

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