Industry readiness has not deterred more traditional hedge funds from investing in crypto, and as digital assets gain more acceptance, more crypto-focused funds are being created, according to PwC 4.e Global Crypto Hedge Fund Annual Report 2022 released earlier this week.
John Garvey, Head of Global Financial Services at PwC USA, stated in a related press release: “The recent collapse of Terra clearly demonstrated the potential risks of digital assets. There will always be some will, but the market is maturing, and with it comes not only more crypto-focused hedge funds and more AuMs created, but also more traditional funds entering the crypto space.
Of the traditional hedge funds surveyed, 38% invest in digital assets, up from 21% a year earlier. There are more than 300 cryptocurrency-focused hedge funds worldwide, and the pace of their creation has accelerated over the past two years.
According to the report, most traditional hedge funds are simply putting their feet up as 57% own less than 1% of total assets under management (AuM) in digital assets. However, for 20% of these funds, digital assets make up between 5% and 50% of AuM. In addition, two-thirds of the funds that currently invest in digital assets intend to optimize additional capital there by the end of this year.
Assets under management
For specialized crypto hedge funds surveyed, the average AuM more than doubled to around $59 million from $23 million the previous year. From 2020 to 2021, the percentage of crypto hedge funds with AuMs over $20 million has increased from 46% to 59%.
Crypto hedge funds will continue to achieve strong growth despite the will of the cryptocurrency. The PwC report states that the average return of a crypto fund in 2021 was +63.4%. However, this is significantly lower than the average return of +127.55% in 2020.
Most crypto hedge funds traded Bitcoin (BTC) at 86%; followed by Ethereum (ETH) with 81%; Solana (SOL) by 56%; Peas (DOT) 53%; Terra (LUNA) by 49% and Avalanche (AVAX) by 47%.
While more traditional hedge funds are investing in crypto, some are still hesitant.
However, the number of traditional hedge fund managers who do not invest in digital assets is declining, falling to 62% of respondents from 79% a year earlier.
Regulatory uncertainty appears to be a key issue for hedge funds, whether they currently invest in digital assets or not. 89% of hedge fund managers investing in digital assets cited the lack of clarity around regulation and taxation as a major issue. For managers not currently investing in crypto, regulatory uncertainty was cited as the top hurdle by 83%.
The PwC report presents the results of a survey conducted in the first quarter of 2022 in conjunction with the Alternative Investment Management Association and Elwood Asset Management (now part of CoinShares).
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