The crypto hedge fund market is evolving as traditional players want to get a slice of the digital asset pool.
What seemed a rare sector is now gaining popularity as the number of specialist crypto hedge funds worldwide has grown to more than 300, according to PwC’s Global Crypto Hedge Fund report. Total assets under management of crypto hedge funds – non-traditional hedge funds – increased 8% year-over-year to $4.1 billion in 2021. $1,234 trillion as of June 9 according to CoinMarketCap data.
On the more mainstream side of finance, 38% of traditional hedge funds currently invest in digital assets, up from 21% a year ago, the report found.
“It’s the quest for alpha. Everyone is always looking for an angle,” John Garvey, global financial services leader principal at PwC, told Marketingwithanoy. “So how are you going to beat the benchmarks? You have to try something different, new and unorthodox.”
While hedge funds may be getting curious about crypto, they’re just testing the waters now, as more than half of them, or 57%, have less than 1% of their total assets under management, or AUM, in digital assets, the report found. Only about 5% of hedge funds had high exposure to digital assets, with 20% to 50% of their AUM being invested in the space.
As markets remain highly volatile and many cryptocurrencies have fallen significantly from all-time highs, two-thirds of all surveyed hedge funds currently investing in the space plan to put more capital into the market by the end of 2022.
While there are hundreds of cryptocurrencies, hedge funds look at the two largest by market cap: Bitcoin and Ethereum. However, in an interesting twist, 19% is invested in NFTs, a growing asset subsector that took the crypto market by storm in 2021.
The majority of the surveys were conducted before current market conditions, Garvey said, but noted that regardless of today’s choppy prices, many people still view the asset class as further ahead of where it was during the last major bear market (or crypto winter). , as some like to call it) in 2017 and 2018.
The resilience of crypto markets
“I think it’s proven to be a pretty resilient asset class and we’re going to see a new recovery and some people are taking advantage of this buying opportunity,” Garvey said. “The asset class will grow, you might see a little bit of a downturn, but ultimately it’s a rising asset class and people are getting more and more comfortable with it, so you’re going to continue to see a growing level of interest in it from high-net-worth individuals and family offices. .”