While the general cryptocurrency market has been in the red for most of 2022, recent reports reveal that more traditional hedge funds are still investing in digital assets, with the number of such entities estimated to reach 300.
More traditional hedge funds are getting into crypto
According to PricewaterhouseCooper’s (PwC) 4th Annual Global Crypto Hedge Fund Report, 89 hedge funds were implicated in an investigation conducted in the first quarter of 2022.
The research revealed that 38% of traditional hedge funds were already investing in cryptocurrency, a jump from 21% recorded a year ago. Also, two-thirds of the entities surveyed currently investing in digital assets are looking to increase their allocation by the end of 2022.
Back in April, UK hedge fund giant Brevan Howard planned to invest 1.5% of its capital in various cryptocurrencies. A previous survey from June 2021 revealed that nearly 100% of hedge funds intend to allocate 7.8% (on average) of their portfolios to crypto by 2026.
Traditional hedge fund managers not involved in such investment reduced to 62%, compared to 79% in the previous year. Meanwhile, 29% of those not purchasing digital assets are either making plans to invest or are at the late stage of their investment plans.
On the other hand, the PwC report noted that the estimated number of specialized crypto hedge funds is 300 globally, adding that new entities have been created at an accelerated pace over the past two years.
The most-traded digital asset for crypto hedge funds was Bitcoin, with Ether coming second, followed by Solana, Polkadot, Terra, and Avalanche.
Regulatory uncertainty is a major barrier to investing in crypto
Although more traditional hedge funds are getting into crypto, most still err on the side of caution. According to the survey, 57% have allocated less than 1% of their total assets under management (AUM) to cryptocurrency.
Also, 41% of asset managers not investing in digital assets said they are not likely to gain such exposure in the next three years. Another 31% are curious about cryptocurrency but prefer to wait till the market reaches robust maturation.
Meanwhile, regulatory uncertainty was the biggest hurdle for respondents not involved in crypto investing, while hedge funds with such exposure said the lack of tax and regulatory clarity was a major challenge.
Global Financial Services Leader, PwC United States, John Garvey noted that although the crypto market came with risks and volatility, that has not hindered the traditional hedge funds from making crypto investments.
“The recent Terra collapse has clearly demonstrated the potential risks of digital assets. There will always be volatility, but the market is maturing and with that not only come many more crypto-focused hedge funds and higher AuMs, but also more traditional funds entering the crypto space.
