Cryptocurrency investments remain appealing to hedge funds, notwithstanding recent market fluctuations and regulatory uncertainties.
According to a study by consulting firm PwC in conjunction with CoinShares, most funds remain optimistic about the market and plan to increase their investments in cryptocurrency assets this year.
The study found that crypto hedge funds are working to create a new industry dynamic based on rebuilding user confidence and addressing their needs. Almost 93% of them expect the crypto market capitalization to grow over the course of the year and are ready to boost their investments. This proves that cryptocurrency hedge funds remain a popular investment vehicle for those looking to invest in crypto-assets.
That said, the number of traditional hedge funds investing in cryptocurrencies fell to 29% this year, although it was around 37% in 2022. Among hedge funds investing in cryptocurrencies, 62% hold less than 5% of their assets in them, while 8% hold over 20%. On the other hand, industry representatives said they have no plans to reduce their investments in digital assets, and half of them plan to increase their crypto investments this year. In comparison, around 67% of traditional hedge fund representatives said this last year.
The main challenges preventing traditional hedge funds from increasing investment in the crypto market included:
- the need for regulation of trading platforms;
- ensuring asset segregation in DeFi;
- lack of regular financial audits;
- confirmation of cryptocurrency exchanges’ reserves.
It’s worth noting that globally, the tightening of regulatory requirements by the government caused concern among TradFi representatives. At the same time, about 42% of crypto fund reps claim that the uncertainty of cryptocurrency policy won’t affect their activities.
Moreover, the actively developing tokenized asset sector doesn’t look particularly attractive for hedge funds. Thus, only 15% of representatives consider investing in tokenized securities, and only 4% tokenize shares of their own funds.
The survey was conducted among representatives of 59 traditional and 131 cryptocurrency hedge funds.
Another recent PwC survey showed that the level of adoption of cryptocurrencies by institutional investors directly depends on the development of secure and transparent ways to custody digital assets.
