At Digital Wager Wire we continue our cryptocurrency series by asking the question – are hedge funds investing in crypto?
That is a straightforward answer and that is a resounding “yes”. It appears they have been investing for a few years now, but rather interestingly, last year’s estimations suggest only 29% of hedge funds are investing in cryptocurrency in 2023, down from 37% in 2022.
Why Has It Fallen by 8%?
It appears that 23% of hedge funds have taken the decision to reassess their investment portfolios because of the new regulations in the United States. A certain percentage of hedge funds, just above 10% are reviewing their options and considering moving them away from the U.S. to more crypto-friendly jurisdictions.
How Is the Long-Term Belief in Crypto?
Long-term belief in the hedge fund industry appears sound, and the impression given by respondents is that they will, in the worst-case scenario, maintain their current exposure with a good chance that they will increase those liabilities in 2024. That important information came in the Global Crypto Hedge Fund Report and it went on to state that those regulatory barriers mentioned earlier had weakened confidence slightly in the short-term.
Furthermore, another long-term boost for the industry was how 37% of traditional hedge funds that had not invested currently in crypto were still very curious and awaiting further asset maturities.
Further News From the PwC Report
PwC (PricewaterhouseCoopers) who published the Global Crypto Hedge Fund Report has an important role to play in the industry. Their remit has always been “to build trust in society and solve important problems.”
Therefore, when they produced further findings for the financial community on this report, it was taken seriously in both the traditional hedge fund community and the digital world of crypto. With the intention of bringing the two closer together over time, further surveys were collated, one from the traditional hedge fund community, one from crypto hedge fund holders, and the other from those who may or may not invest in the digital stock.
PwC Report Recommendations
The thorough PwC report brought further recommendations for the industry to consider.
Tokenization
One of the initial recommendations from the report was that tokenization is a positive way forward for both industries because:
- Hedge funds naturally have a more positive view of tokenized assets and securities.
- The increased efficiency and faster settlement times, combined with lower costs will be bound to attract more investors
- Over 30% of hedge funds analyzed believed that tokenization is a big growth opportunity for the cryptocurrency space.
Why Crypto Is Still the “New Kid on The Block”
Despite the growth of NFTs (non-fungible tokens), cryptocurrency assets are still the “new kid on the block” for hedge fund managers. The report showed that no respondents were invested in NFTs this year after the year before when 20% reported they had invested in the new digital art world.
That means cryptocurrency has endured a slightly more conservative approach from hedge fund investors, while those same shrewd corporations have cooled off completely on the idea that NFTs are a solid investment for hedge funds.
All hedge funds strategies with crypto reported a loss except one. Interestingly, the report found that all hedge fund strategies with crypto reported a loss except one called “Market Neutral”.
What is Market Neutral?
Market Neutral, unsurprisingly in the difficult economic climate, is a strategy that is almost risk-free and ultra-conservative. This is effectively better known as arbitrage and sharp traders can scalp a profit from the market whether the market goes up or down.
Conclusion
Here at Digital Wager Wire, we asked the question, are hedge funds investing in crypto?
What we found is that the amount of hedge funds invested in crypto had fallen by 8% to 29%, those figures were encouraging in the difficult business climate. We learned that many of the hedge funds are sitting out currently due to jurisdictions and regulatory bodies whose rules can change dramatically depending on the region. What seemed a competitor for crypto in attracting hedge fund investment a year ago in NFTs was no longer a problem.
Our conclusion is that, as soon as hedge funds are happy with the regulatory bodies and jurisdictions, their confidence to invest will still be there. They have tokenization as a positive new step in the right direction, and market neutral trading on the crypto markets has still managed a small yield.
We believe long-term that hedge funds will be investing in cryptocurrency more and more.
