Around 21% of traditional hedge funds in the world have already invested in cryptocurrencies—while crypto-focused ones doubled their assets under management (AUM) over the course of 2020, says a new report by professional services network PricewaterhouseCoopers (PwC).
“We estimate that the total assets under management (AuM) of crypto hedge funds globally increased to nearly US$3.8 billion in 2020 from US$2 billion the previous year. The percentage of crypto hedge funds with AuM over US$20 million increased in 2020 from 35% to 46%,” the firm noted.
Hedge funds double down on crypto
Per PwC’s third annual “Global Crypto Hedge Fund Report,” Bitcoin is the most popular asset as 92% of crypto funds are trading it. The coin is followed by Ethereum (67% of funds traded it), Litecoin (34%), Chainlink (30%), Polkadot (28%), and Aave (27%).
Meanwhile, the vast majority of crypto hedge fund investors are high-net-worth individuals (54%) and family offices (30%).
“The median ticket size is US$0.4 million, while the average ticket size is US$1.1 million. Over half of crypto hedge funds have average ticket sizes of US$0.5 million and below. Crypto hedge funds have a median of 23 separate investors,” the report noted.
At the same time, every fifth “traditional” hedge fund—or roughly 21%—is also investing in cryptocurrencies today. On average, such organizations have allocated around 3% of their AUM in digital assets, but nearly all of them (85%) are already planning to purchase more crypto by the end of 2021.
Challenges of embracing crypto
Further, 26% of hedge fund managers who are not investing in crypto reported that they are “in late-stage planning to invest or looking to invest” in digital assets. However, 82% of them also argued that regulatory uncertainty is one of the major obstacles that stand in the way of embracing crypto.
Meanwhile, 50% of funds that already invest in digital assets have similarly stated that crypto presents “a major challenge,” citing high client reaction/reputational risk (77%) as well as the fact that cryptocurrencies are currently “outside the scope of current investment mandates” (68%). Nearly two-thirds of PwC’s respondents also acknowledged that they “don’t have enough knowledge of digital assets.”
But if the aforementioned barriers to entry were removed, 64% of hedge funds “would definitely start/accelerate their involvement/investment or potentially change their approach and become more involved” in cryptocurrencies, the report concluded.
