According to Bloomberg reporta recent survey found that nearly half of traditional hedge funds have some exposure to cryptocurrencies, with the level of exposure expected to increase by the end of the year.
Traditional Hedge Funds Entering Crypto
A survey by the Alternative Investment Management Association (AIMA) and PwC revealed that 47% of traditional hedge funds now have some level of exposure to digital assets. This is a significant increase from 37% in 2022, although it is down from 29% in 2023.
Among the hedge funds already invested in digital assets, about 67% plan to maintain their current level of investment in crypto, while the rest are expected to increase their share by the end of 2024.
The report highlights the shift in hedge fund investment strategies, from trading tokens in the local market to more advanced strategies such as derivatives trading.
For example, in 2023, 38% of surveyed hedge funds traded digital asset derivatives. This figure rises to 58% by 2024. In contrast, the percentage of hedge funds trading in the available markets fell from 69% in 2023 to 25% in 2024.
A major driver behind the increase in crypto exposure is the increasing transparency of regulation and get started of crypto exchange-traded funds (ETF) in the US and Asia. James Delaney, managing director of asset management regulations at AIMA, comments:
The findings of this year’s report indicate a strong recovery in self-confidence over the past year. It is actually the legal clarity that we are starting to see around the world. That clarity really boosts confidence in the legacy category.
Although digital assets are always volatile, sharp price swings offer attractive trading opportunities for funds with a high risk tolerance.
Edward Chin, the founder of Parataxis Capital Management, emphasized that traditional investment strategies can help investors make big gains given that the crypto market is “inefficient.”
By “less efficient,” Chin probably means that the crypto market has more information gaps, price differences, and volatility compared to traditional markets. This allows skilled investors to take advantage of this inefficiency to generate high returns using proven investment strategies.
Some Hedge Fund Managers Are Still Skeptical About Crypto
Despite the encouraging research results, some hedge fund managers continue to keep their distance from digital assets. 76% of hedge funds that do not currently own digital assets say they are unlikely to change their minds in the next three years, up from 54% in 2023.
For some, the current regulatory framework for digital assets is too immature to justify adding them to their portfolios. For example, in July 2023, the Nasdaq suspended its plans to launch a crypto custody business, explaining the regulatory uncertainty surrounding the emerging asset class.
In related news, a recent survey in Japan found that most institutional investors are willing to invest in digital assets within the next three years. BTC is trading at $61,034 at press time, down 1.5% in the last 24 hours.
Featured image from Unsplash.com, Chart from TradingView.com
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