Hedge funds reduce crypto investments: Report

• 12% hedge funds are contemplating moving from the U.S. to crypto-friendly jurisdictions.
• The findings are part of a recent report on hedge funds investing in crypto published by PwC.

The proportion of traditional hedge funds investing in crypto assets declined to 29% this year, compared to 37% in 2022. However, confidence in the value proposition and long-term sustainability of digital assets seems robust.

The findings are part of the 2023 Global Crypto Hedge Fund Report

PwC, along with the Alternative Investment Management Association (AIMA) and CoinShares, has prepared this report. It includes findings from two surveys, one from traditional hedge funds, and another from crypto hedge funds.

According to the report, the average allocation to crypto assets managed by traditional funds climbed from 4% to 7% over the last 12 months. This year, no traditional fund intends to reduce its exposure to digital assets.

Regarding the opinion of crypto hedge funds, 93% of them expect the market capitalization of these assets to be higher at the end of 2023 than it was towards the end of 2022.

How current market conditions impact crypto investments

But the current regulatory climate in the United States has a rather negative impact on the market sentiment of hedge fund investors regarding investments in virtual assets.

23% of traditional hedge funds are re-evaluating their strategy in virtual asset investments due to the regulatory conditions in the country. Right now, 71% of these funds are not invested in crypto, in comparison to 63% in 2022.

On the other hand, 50% of crypto hedge funds believe the recent market volatility had no impact. However, 12% of them are contemplating moving from the U.S. to crypto-friendly jurisdictions. Companies expect greater transparency and regulatory requirements following the failure of several ventures last year.

None of the survey participants said they had invested in non-fungible tokens (NFTs). In 2022, one out of five traditional hedge funds invested in NFTs.

John Garvey, Global Financial Services Leader, PwC U.S., said,

“Despite market volatility, a fall in digital asset prices and the collapse of a number of crypto businesses, investment in crypto-assets is expected to remain strong in 2023. … However, it’s clear that regulatory uncertainty and barriers increasingly weigh on investment decisions of many funds, with more than half of those surveyed noting they would likely invest/invest more in digital assets once greater transparency, regulatory certainty and risk management is in place.”