Investors Flock to Crypto Funds as Returns Outperformed Broad Assets Amidst War Tensions

Investors globally are increasing their exposure in cryptocurrency funds and companies as many now believe it could withstand the fallout from the Russia-Ukraine conflict.

In a notes to client, research firm Fundstrat said venture capital (VC) buyers invested around $4 billion in the crypto space int eh las three weeks of February.

VCs poured in another $400 million to start-ups in the sector last week, data showed.

Fundstrat data showed, the VC investment is consistent with the board weekly inflows. The report showed investments in the industry have been averaging anywhere between $800 million to about $2 billion.

New crypto funds also raised nearly $3 billion over the last 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 chief executive officer of Decasonic, as reported by Reuters.

He added that there’s demand of up to $200 million to invest in his fund.

“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 nor investors,” Hsu said.

Refinitiv Lipper data showed that U.S. investors pulled a net $7.8 billion out of bond funds in the week to March 9.

“Crypto native companies are still raising 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.”

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

Cryptocurrencies have outperformed gains of traditional risky assets during the Ukraine-Russian war with Bitcoin rose 12.3% in February while Ether gained 8.8%.

“People are starting funds, encouraged by the appreciation in prices over the last couple of years,” he said.