47% of Hedge Funds Now Invest in Cryptocurrencies, Driven by Regulatory Clarity and ETF Launches

Almost half of hedge funds are diving into cryptocurrencies. A recent survey by PwC found that 47% of traditional hedge funds now have some exposure to digital assets. That’s a big jump from about 29% last year and 37% in 2022.

This survey, which included around 100 global hedge funds, shows that the increase is due to clearer regulations and the launch of spot crypto exchange-traded funds in the U.S. and Asia. Among those already invested, more than two-thirds—67%—plan to keep their current investment levels. The rest aim to boost their holdings by the end of the year.

Steve Kurz, who leads asset management at Galaxy, mentioned, “Further regulatory clarity is on the horizon. A sustained period of institutional adoption will follow.” The 100 funds surveyed manage about $125 billion in assets. They provided their feedback during the second quarter, when crypto prices were hitting record highs.

The most popular strategies among traditional hedge funds include market-neutral and discretionary long-only approaches. Each of these strategies is used by 33% of the respondents. Market-neutral strategies help manage risk in the volatile digital asset market. On the other hand, discretionary long-only strategies aim to capitalize on the potential growth of innovative blockchain projects.

Additionally, 17% of respondents prefer quantitative long/short and quantitative long-only strategies. The quantitative long/short strategy uses algorithms and data analysis to take advantage of market inefficiencies.

However, macro analyst Noelle Acheson urges caution regarding hedge fund involvement in crypto. She notes that these funds are not typically long-term holders. Still, she adds that there are fewer reasons for hedge funds to view crypto as just a risky play. The rise of sophisticated derivatives markets, especially with options on spot Bitcoin ETFs, allows for more efficient trading.

Acheson also points out that increased liquidity and market size will attract larger players, which will help further develop the market. Among traditional hedge funds that don’t invest in digital assets, over three-quarters—76%—say they’re unlikely to enter the space in the next three years. That’s up from 54% in 2023. The main barrier? Many funds exclude digital assets from their investment mandates. Yet, concerns about regulatory uncertainty are easing as global frameworks like Europe’s MiCA regulations emerge.