A survey found that 47% of traditional hedge funds have exposure to digital assets, up from 29% last year and 37% in 2022.
A survey of about 100 global hedge funds conducted by PwC and the Alternative Investment Management Association found that increased regulatory clarity and the launch of spot crypto exchange-traded funds in both the US and Asia have led to companies piling up.
Of those who have already invested, more than two-thirds, or 67%, plan to keep the same amount of money in crypto, while the rest say they will increase their holdings by the end of the year.
“Further regulatory clarity is on the horizon,” Steve Kurz, global head of asset management at Galaxy, said in the report. “A steady period of institutional adoption will follow.”
The 100 funds surveyed — 42% traditional and 58% digital-asset focused — have roughly $125 billion in assets under management.
Their responses were collected in the second quarter, when crypto prices were at or near records.
strategies
The most popular digital asset strategies among traditional hedge funds are market-neutral and discretionary long-only – each adopted by a third, or 33%, of respondents.
Investors prefer market-neutral strategies “for their ability to manage risk while seeking returns in volatile digital asset markets,” the report said.
Join the community to get our latest articles and updatesDiscretionary long-only strategies “lack the volatility-reducing properties of market-neutral portfolios that can exploit the upside potential of innovative blockchain projects or tokens.”
17% of respondents preferred quantitative long/short and quantitative long-only strategies.
A quantitative long/short strategy “enables algorithmic models and data analysis to exploit perceived market inefficiencies and trends,” the report says.
Fast exit
Don't get too excited about hedge fund involvement in crypto, says macro analyst Noel Acheson.
They are not long-term holders, nor are they long-term investors.
“Remember that buy-and-holds are likely to be short and they can exit quickly,” writes Noel Acheson in his “Crypto Is Macro Now” newsletter.
However, she added: “Hedge funds have less and less reason to treat crypto as a pure risk play. The development of sophisticated derivatives markets, especially after spot BTC ETFs start trading, means they can more effectively trade relative risk within the crypto basket.
And, she added: “Greater liquidity as well as market size will bring in bigger players, which will further help liquidity and market size, as well as encourage further development in infrastructure.
Accidents
Among traditional hedge funds that do not invest in digital assets, more than three-quarters, or 76%, say they are unlikely to enter the space in the next three years. It will increase to 54% in 2023.
A major barrier to entry is the exclusion of digital assets from investment mandates, the report found.
Regulatory uncertainty is receding as a key concern as global frameworks emerge, including Europe's MiCA rules.
Trista Kelly is News Editor-in-Chief. Got a tip? Email at [email protected].
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