PricewaterhouseCoopers (PwC) has released its fifth annual global crypto hedge fund report, showcasing the resilience of crypto hedge funds in the face of recent market turbulence.
Quick facts:
- PwC survey: Crypto hedge funds optimistic, expect market cap growth in 2023.
- Crypto hedge funds outperformed Bitcoin in 2022, showcasing resilience.
- Traditional hedge funds investing in crypto declined, but those remaining plan to increase investments.
- Tokenization adoption is limited among crypto hedge funds.
The survey, conducted in the first quarter of 2023, gathered insights from both crypto-native and traditional hedge funds, shedding light on their sentiments and strategies in the crypto market.
Despite the challenges posed by the crypto winter and regulatory uncertainties, the survey found that many crypto hedge funds maintain a positive outlook.
The report highlighted the proactive efforts of crypto-native hedge funds to rebuild confidence in the industry, with an overwhelming 93% of these funds expecting the market cap of cryptocurrencies to increase throughout the year.
Interestingly, 53% of the funds reported no exposure to FTX exchange or the Terra Luna ecosystem.
The performance of crypto hedge funds in 2022 surpassed that of Bitcoin, indicating their appeal as investment vehicles in the crypto-asset market. The majority of funds outperformed the flagship cryptocurrency, showcasing their ability to navigate market fluctuations and deliver favorable returns.
U.S. Regulations Not Expected to Significantly Affect Crypto Hedge Funds
The survey also examined the investment preferences of these funds. While more than half of the funds operate in the United States, they demonstrated a similar response to U.S. regulations compared to funds in other regions.
Approximately 42% of the funds stated that they do not anticipate significant impacts from U.S. regulations on their operations.
Furthermore, the report identified key requirements such as the segregation of assets, financial audits, and an independent statement of reserve assets as necessary elements for trading venues.
Tokenization within the sector remained relatively limited, with only 15% of the funds considering investments in tokenized securities. Additionally, only 4% of the funds tokenize units in their own funds, suggesting cautious adoption of tokenization practices.
Client Reactions and Reputational Risks Remain Obstacles
While the percentage of traditional hedge funds investing in cryptocurrencies slightly decreased from 37% in 2022 to 29% in 2023, many of the remaining funds expressed their intention to increase crypto investments this year.
The survey revealed that 62% of these funds hold less than 5% of their assets under management in crypto, with only 8% allocating more than 20% to crypto investments. While the figure for those planning to increase crypto investments decreased to 46% from the previous year’s 67%, none of the respondents indicated a decrease in capital levels deployed in crypto.
Related: MicroStrategy Buys Bitcoin Worth $347M, Pushing Total to $4.6B
Among the funds not currently investing in cryptocurrencies, “client reaction or reputational risk” emerged as the primary reason, surpassing “regulatory uncertainty.” Surprisingly, 40% of these funds stated that the removal of regulatory barriers would not be sufficient to prompt them to venture into crypto investments.
The survey, conducted in collaboration with CoinShares, gathered data from 131 crypto-native funds and 59 traditional hedge funds. It provides valuable insights into the resilience of crypto hedge funds and their ability to adapt to evolving market conditions.
