Despite the current market turmoil, traditional hedge funds continue to pour money into crypto assets and products, according to a survey by PwC.
While the crypto market as a whole is in the red for most of 2022 with leading cryptocurrency Bitcoin down more than 45% year-to-date, recent reports reveal many traditional hedge funds are still investing in crypto assets, with the number of such organizations estimated at 300.
According to PricewaterhouseCooper (PwC)’s 4th annual global crypto hedge fund report, 89 hedge funds participated in the survey conducted in Q1 of 2022.
The research revealed that 38% of traditional hedge funds invest in crypto, a huge jump from the 21% recorded a year ago. Additionally, two-thirds of entities surveyed investing in digital assets are looking to increase their allocation by the end of 2022.
In April, British hedge fund giant Brevan Howard planned to invest 1.5% of its capital in various tokens. An earlier survey from June 2021 found that nearly 100% of hedge funds plan to allocate an average of 7.8% of their portfolios to crypto by 2026.
Traditional hedge fund managers not participating in such investment fell to 62%, from 79% the year before. Meanwhile, 29% of those who do not buy digital assets are planning to invest or are in the final stages of investment planning.
On the other hand, the PwC report notes the estimated number of professional crypto hedge funds is 300 globally, and new entities have been created at a rapid rate over the past 2 years.
The most-traded digital asset by hedge funds is Bitcoin, and Ethereum comes in second. Followed by SOL, DOT, LUNA, and AVAX.
While more and more traditional hedge funds are entering this emerging market, most remain cautious. According to the survey, 57% have allocated less than 1% of their total assets under management (AUM).
Additionally, 41% of asset managers who do not invest in crypto say it is unlikely that they will achieve such a level of exposure in the next 3 years. Another 31% are curious but want to wait until the market matures strongly.
Meanwhile, regulatory uncertainty is the biggest barrier to non-participants. They cite the lack of regulatory and tax clarity as a major challenge.
PwC U.S. Global Head of Financial Services John Garvey noted that while the cryptocurrency market is associated with risk and volatility, there is no stopping traditional hedge funds from investing in it.
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