In a recent survey conducted by the Alternative Investment Management Association and PwC, it was found that nearly half of traditional hedge funds now invest in cryptocurrencies. This marks a significant increase from previous years, with 67% of funds planning to maintain their current capital levels and 33% intending to invest more by the end of 2024. The most popular digital asset strategies among traditional hedge funds are market-neutral and discretionary long-only, each adopted by 33% of respondents. The survey included nearly 100 hedge funds from over six regions, managing about $124.5 billion in total assets.
The survey also revealed that centralized exchanges are the preferred trading venues for 58% of traditional hedge funds, due to their liquidity and ease of use. Decentralized exchanges are used by 33% of funds, offering greater control over assets. There has been a notable shift towards derivative trading in digital assets, with its use rising to 58% in 2024 from 38% in 2023. Additionally, interest in fund tokenization is growing, with 33% of hedge fund respondents committed to or exploring tokenization, up from around 25% last year. Regulatory challenges remain a barrier to wider adoption.
Despite the growing interest in digital assets among traditional hedge funds, many managers remain hesitant to enter the market. Of those not currently invested in digital assets, 76% are unlikely to enter the space within the next three years, citing barriers such as the exclusion of digital assets from investment mandates. However, regulatory uncertainty has eased somewhat due to clearer frameworks like the EU’s Markets in Crypto-Assets (MiCA) regulation. Family offices and high-net-worth individuals are currently the largest investors in digital asset-focused funds, followed by funds of funds.
Overall, the survey highlights the increasing interest in digital assets among traditional hedge funds, driven by regulatory clarity and the launch of spot cryptocurrency ETFs in Asia and the US. However, significant barriers still exist to wider adoption, including regulatory challenges and the exclusion of digital assets from investment mandates. Despite these challenges, the cryptocurrency sector continues to attract the attention of traditional hedge funds, signaling a shift towards a more sophisticated and diverse investment landscape in the digital asset space.
