PwC Survey Sees More Hedge Funds Investing In Crypto, Despite Volatility

PwC Survey Sees More Hedge Funds Investing In Crypto, Despite Volatility

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Volatility in the sector hasn’t deterred more traditional hedge funds from investing in crypto, and more crypto-focused funds are being created as digital assets gain more acceptance, according to PwC’s 4e Global Crypto Hedge Fund 2022 Annual Report, released earlier this week.

John Garvey, Global Financial Services Leader at PwC USA, said in a related press release: “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 come not only many more crypto-focused hedge funds and higher AuMs, 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. The number of crypto-focused hedge funds is estimated to be over 300 globally, with the pace of creation accelerating over the past two years.

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According to the report, most traditional hedge funds are just dipping their toes, as 57% have less than 1% of total assets under management (AuM) in digital assets. However, for 20% of these funds, digital assets represent between 5% and 50% of the AuM. In addition, two-thirds of funds currently investing in digital assets intend to deploy more capital there by the end of this year.

Assets under management

For the 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 AuM exceeding $20 million increased from 46% to 59%.

Crypto hedge funds continue to achieve strong growth despite crypto volatility. PwC’s report states that the median crypto fund returned +63.4% in 2021. Still, this was significantly lower than the median return of +127.55% in 2020.

Most crypto hedge funds traded Bitcoin (BTC) at 86%; followed by Ethereum (ETH) at 81%; Solana (SOL) at 56%; Pea (DOT) 53%; Terra (LUNA) at 49% and Avalanche (AVAX) at 47%.

While more traditional hedge funds are investing in crypto, some remain hesitant.

Still, the number of traditional hedge fund managers not investing in digital assets is falling, to 62% of respondents from 79% a year earlier.

Regulatory uncertainty appears to be the key issue for hedge funds, whether or not they are currently invested in digital assets. Lack of regulatory and tax clarity was cited as a major challenge by 89% of hedge fund managers currently investing in digital assets. For managers not currently investing in crypto, regulatory uncertainty was ranked as a top hurdle by 83%.

The PwC report shared the results of a survey based on a survey conducted in the first quarter of 2022, produced in conjunction with the Alternative Investment Management Association and Elwood Asset Management (now part of CoinShares).

© 2022 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or intended for use as legal, tax, investment, financial or other advice.

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