PwC Reports Strong Crypto Confidence Among Hedge Funds

PwC’s recent findings showcased a decline in the proportion of conventional hedge funds venturing into the realm of cryptocurrencies. In 2023, the figure plummeted from 37% to 29%. Nonetheless, trust in the significant worth and enduring viability of crypto assets persists. The report further uncovered that traditional hedge funds already involved in the crypto space are resolute in preserving or expanding their exposure, showing indifference towards market fluctuations and regulatory ambiguity. For more information you can visit Immediate Momentum .

In the last year, traditional hedge funds have witnessed a notable increase in their proportion of investments dedicated to cryptocurrency, escalating from 4% to 7%. Nevertheless, a tad more than fifty percent of the traditional funds surveyed conveyed their hesitance to engage in crypto investments over the upcoming three years. The year’s end will witness a surge in overall crypto market capitalization, as predicted by 93% of crypto hedge funds participating in the report. This report, developed in partnership with the Alternative Investment Management Association and CoinShares, incorporates valuable perspectives from these funds.

Crypto Continues to Garner Strong Support from Traditional Hedge Funds

Based on John Garvey, global financial services leader at PwC United States, investment in crypto assets is likely to stay strong in 2023 despite market volatility, dropping digital asset prices and the collapse of specific crypto businesses. He emphasized that traditional hedge funds, with a long-term commitment to the market, aren’t just raising their crypto-assets under management but also maintaining or even increasing their capital deployment in the ecosystem.

Garvey acknowledged that regulatory uncertainty is an issue for many funds, and over half of the surveyed participants indicated a willingness to invest more when greater transparency, regulatory certainty, and risk management procedures are established. The report revealed that 23% of regular hedge funds have been examining their crypto strategies on account of the U.S. regulatory environment, along with 12% of crypto hedge funds contemplating moving outside the nation.

Building Investor Trust: The Role of Regulatory Clarity in Driving Engagement

Crypto hedge funds, which concentrate exclusively on investing in crypto assets, are increasingly urging for improved transparency and regulatory measures. After some crypto business failures in 2022, this push seeks to lessen the risk for investors and boost trust in the asset class. The required segregation of assets is a top demand from these funds, noted by 75% of the survey respondents, with mandatory financial audits arriving at 62% and an independent declaration of reserves at 60%. 

Notably, liquidity, once overshadowed by platform security, is now deemed as important as 21% of surveyed crypto hedge funds consider it their main consideration, up from 10% the prior year. Additionally, over half (53%) of the funds surveyed have enhanced their counterparty risk management methods in light of the market events of 2021. The regulatory landscape in the US has brought up concerns among traditional hedge funds that hold crypto-assets. About 23% of these funds admitted the regulatory changes might significantly impact their activities or prompt a reevaluation of their crypto-asset exposures. 

However, much more than half (54%) of conventional hedge funds not presently investing in crypto confirmed their readiness to reconsider and demonstrate increased interest in the asset class in case business obstacles as well as uncertainties have been remedied. This is actually up from 29% the prior year. Crypto hedge funds seem less bothered by regulatory changes compared to conventional hedge funds. Just one-third of them anticipate increased legal and compliance costs, as well as 12%, are considering moving to jurisdictions with far more favourable regulatory environments for crypto due to the US regulatory environment.

The Future Lies in Tokenization

Conventional hedge funds exhibit more interest in tokenized assets and securities than crypto hedge funds. Just 15% of conventional hedge funds are considering purchasing tokenized securities, while just 25% consider tokenization. Tokenization has possible advantages, including improved efficiency, quicker settlement times and reduced operating costs. Based on a survey, tokenization may be the top growth opportunity of crypto-assets for the upcoming year, based on roughly 31% of typical hedge funds surveyed.