PwC survey: More and more traditional hedge funds are investing in cryptocurrencies

Vienna (OTS)

  • Crypto on the way: About 1/3 of traditional hedge funds are now investing in digital assets
  • Median cryptocurrencies returned +63.4% in 2021
  • Bitcoin (BTC) tops traded crypto hedge funds followed by Ethereum (ETH) and Solana (SOL)
  • Regulatory and fiscal uncertainty as the biggest barrier to investment

Despite volatility, more and more traditional hedge funds are investing in cryptocurrencies. Due to the increasing acceptance of the digital asset class, more specialized cryptocurrencies are also being launched. Currently, 38% of traditional analyzed hedge funds invest in digital assets compared to 21% last year. The total assets under management of the crypto hedge funds under investigation increased by 8%, bringing it to $ 4.1 billion in 2021. These are the results of PwC’s 2022 Global Crypto Hedge Funds report, co-authored with the Alternative Investment Management Association (AIMA) and CoinShares.

However, most of these traditional hedge funds are still in their infancy: 57% of them invest less than 1% of total assets under management in digital assets. However, two thirds of the funds (67%) intend to invest more capital in this asset class by the end of 2022. Across the specialized crypto hedge funds analyzed, average assets under management more than doubled to $ 58.6 million from $ 23.4 million last year.

The Crypto Hedge Fund’s performance remains robust despite challenges

Crypto-hedge funds continue to experience strong growth despite volatility in cryptocurrency. According to the report, the median cryptocurrencies returned +63.4% in 2021, but this was well below the median return of +127.55% in 2020. The most successful trading strategies (based on median returns) were estimated long / short strategies (+199 %). Most crypto-hedge funds traded Bitcoin “BTC” (86%), followed by Ethereum “ETH” (81%) and Solana “SOL” (56%).

PwC examined the funds in April 2022, when cryptocurrencies were already declining and only a month before the Terra ecosystem began to falter. At the time, 27% of the funds said they were trading TerraUSD, the fallen algorithmic stablecoin, and 45% of the funds invested in the sister cryptocurrency Luna. According to the report, cryptocurrency funds continue to generate strong growth despite volatility, and managers are quite optimistic.

Johannes Edlbacher, tax expert and partner at PwC Austria, explains: “The recent collapse of Terra has given us a vivid illustration of the potential risks of digital assets. There will continue to be volatility, but the market is maturing and with it does not come only more crypto-focused hedge funds, but also more traditional funds into the crypto area. “

More traditional hedge funds are investing – but still hesitant

The number of traditional hedge fund managers not investing in digital assets fell from 79% in 2020 to 63% in 2021. Nearly a third of them plan to invest. Still, a significant number of executives remain hesitant – 41% say they are unlikely to invest in the next three years.

Regulatory uncertainty is a key issue for hedge funds. Unclear government and tax rules as well as the fragmented regulatory environment globally were cited as barriers by 83% of hedge fund managers not currently investing in digital assets.

Interest in cryptocurrencies is growing

According to the report, cryptocurrencies are attracting more and more investment talent. In 2021, investment teams grew from 7.6 to 9.6 people on average. Governance is also increasingly in focus: the vast majority (91%) of the funds surveyed have commissioned an independent auditor. The number of funds with independent directors has also increased significantly, from 38% in 2020 to 46% in 2021.

“Rising investor demand has led to interest in cryptocurrencies as an asset class. In addition to several hedge funds, many major traditional asset managers have also explored the crypto area and are working on pilot projects. In the latest market developments, we are seeing an increased demand for transparency and investor confidence, ”says expert Johannes Edlbacher.

For more information, see the Global Crypto Hedge Funds Report 2022

About the study

The data included in the 4th annual edition of the report comes from analyzes conducted in the 1st quarter of 2022 among 77 specialized crypto-hedge fund managers. The report focuses specifically on crypto hedge funds and excludes data from crypto index / tracking / passive funds and crypto venture capital funds.

About AIMA

The Alternative Investment Management Association (AIMA) is the global representative of the alternative investment industry with approximately 2,100 corporate members in over 60 countries. Together, AIMA members manage more than $ 2.5 billion in hedge funds and private debt assets.

About Elwood Technologies / CoinShares

Elwood Technologies is a globally established fintech company building an institutional trading infrastructure for digital assets. It has been developed by industry experts and offers a comprehensive market infrastructure that enables effective access to the digital assets market.

About PwC

Building trust in society and solving important problems – we see this in PwC as our task. We are a network of member companies in 156 countries. More than 295,000 employees worldwide provide high quality services in auditing, tax, legal and management consulting. Tell us what’s of value to you. And find out more at www.pwc.at.

“PwC” means the PwC Network and / or one or more of its member companies. Each member of this network is an independent legal entity. For more information, visit www.pwc.com/structure.

Questions and contact:

PwC Austria
Anna Maria Oberpriller
Business communication
Phone: +43 1 501 88 5115
anna-maria.oberpriller@pwc.com

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