Every fifth hedge fund already invests in cryptocurrencies
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.
“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%.”
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.
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.