The cryptocurrency market has been experiencing remarkable growth in the past year, despite the challenges posed by the Covid-19 pandemic and the regulatory uncertainty. According to a recent report by PwC, a global professional services firm, hedge funds are among the most bullish investors in this emerging asset class.
PwC is one of the leading providers of audit, tax, and advisory services to the crypto industry, with a dedicated global team of experts and a network of over 100 clients. PwC also supports various initiatives and organizations that aim to foster innovation and education in the crypto space, such as the Crypto Valley Association, the World Economic Forum, and the Global Blockchain Business Council.
The report, titled “PwC Crypto Hedge Fund Report 2023“, surveyed 150 crypto hedge funds from around the world, covering various aspects of their operations, strategies, performance and outlook. The report revealed that the average assets under management (AUM) of crypto hedge funds increased by 233% in 2022, reaching $3.8 billion. The median AUM also rose by 189%, reaching $164 million.
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- The number of traditional hedge funds investing in crypto-assets fell to 29% – down from 37% last year – however no traditional hedge fund plans to decrease exposure in 2023
- 23% of traditional hedge funds are reassessing their crypto strategy due to the regulatory environment in the US; 12% of crypto hedge funds are considering relocating from the US to crypto-friendly jurisdictions
- 93% of crypto hedge funds expect the market capitalisation of crypto-assets to be higher at the end of 2023 than 2022
- 31% of traditional hedge funds view tokenisation as the biggest opportunity in 2023; 25% of traditional hedge funds – including those not currently invested in crypto – say they are exploring tokenisation
The report also showed that crypto hedge funds are diversifying their portfolios, investing in a variety of digital assets beyond Bitcoin and Ethereum. The top five most popular cryptocurrencies among crypto hedge funds in 2022 were Bitcoin (88%), Ethereum (75%), Polkadot (42%), Cardano (38%) and Solana (36%). The report also noted that crypto hedge funds are increasingly using decentralized finance (DeFi) protocols and non-fungible tokens (NFTs) as part of their strategies.
One of the main drivers of the growth and confidence of crypto hedge funds is the increasing institutional adoption of cryptocurrencies. The report highlighted that 82% of crypto hedge funds reported an increase in institutional investors in their funds in 2022, compared to 64% in 2021. The most common types of institutional investors were family offices (52%), high-net-worth individuals (48%) and pension funds (32%).
The report also revealed that crypto hedge funds are optimistic about the future of the cryptocurrency market, expecting it to reach $5.6 trillion by the end of 2023, up from $2.1 trillion at the end of 2022. The report also stated that 96% of crypto hedge funds plan to increase their exposure to crypto assets in the next 12 months, while only 4% plan to decrease it.
The report concluded that crypto hedge funds are playing a vital role in the development and maturation of the cryptocurrency industry, providing liquidity, price discovery and innovation as they expect to increase their exposure and diversify their portfolios. PwC also predicts that the sector will continue to grow and mature, attracting more institutional and professional investors. The report also suggested that crypto hedge funds will continue to attract more institutional investors, as they offer attractive returns, diversification benefits and exposure to a new asset class.