PwC survey sees more hedge funds investing in crypto, in spite of volatility

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

John Garvey, global financial services leader at PwC United States, said in a related news release: “The recent collapse of Terra vividly demonstrated the potential risks in digital assets. There will continue to be volatility, but the market is maturing and with that is coming not only many more crypto-focused hedge funds and higher AuM, but also more traditional funds entering the crypto space.”

Of traditional hedge funds surveyed, 38% are investing in digital assets, up from 21% a year earlier. The number of specialist crypto hedge funds is estimated at more than 300 globally, with their pace of creation accelerating during the past two years.

Most traditional hedge funds are still just dipping their toes, according to the report, as 57% have less than 1% of total assets under management (AuM) in digital assets. Still, for 20% of these funds, digital assets represent between 5% and 50% of AuM. Furthermore, two-thirds of funds currently investing in digital assets intend to deploy more capital into them by the end of this year.

Assets under management

For specialist crypto hedge funds surveyed, the average AuM more than doubled to about $59 million from $23 million the previous year. From 2020 to 2021, the percentage of crypto hedge funds with AuM exceeding $20 million increased to 59% from 46%.

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

Most crypto hedge funds traded Bitcoin (BTC) at 86%; followed by Ethereum (ETH) at 81%; Solana (SOL) at 56%; Polkadot (DOT) at 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 shrinking, down to 62% of respondents from 79% a year earlier.

Regulatory uncertainty seems 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 top challenge by 89% of hedge fund managers who currently invest in digital assets. For managers not currently investing in crypto, regulatory uncertainty was ranked as a main obstacle by 83%.

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

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