Amidst recent market turbulence and regulatory uncertainties, PwC’s fifth annual global crypto hedge fund report reveals a positive outlook for the industry. The survey, conducted in Q1 of this year, included responses from both crypto-native and traditional hedge funds.
The report found that crypto-native hedge funds are actively working to rebuild confidence and have high expectations for the market. Around 93% of these funds expect the crypto market cap to rise over the course of the year. Additionally, more than half of the funds (53%) reported no exposure to FTX or the Terra Luna ecosystem.
Interestingly, most of the surveyed funds outperformed Bitcoin’s price in 2022. This indicates that crypto hedge funds continue to be popular investment vehicles for those seeking exposure to the crypto-asset market.
Regarding US regulations, 42% of funds stated that they do not expect them to have an impact. While 54% of the funds operate in the United States, they did not respond differently from their counterparts located elsewhere. Among the requirements that funds would like to see for trading venues, the top preferences were asset segregation (75%), financial audits (62%), and independent statements of reserve assets (60%).
Tokenization appears to have made limited headway in the sector. Only 15% of funds are considering investing in tokenized securities, and merely 4% tokenize units within their own funds.
In terms of traditional hedge funds, the report noted a decline in the percentage of funds investing in crypto, dropping from 37% in 2022 to 29% this year. However, among the funds still investing in crypto, 46% plan to increase their investments in 2023. None of the respondents expressed intentions to decrease their capital levels deployed in crypto. For funds not investing in crypto, concerns over client reaction and reputational risk have surpassed regulatory uncertainty as the main reason for abstaining.
The survey involved 131 crypto-native funds surveyed in partnership with CoinShares, along with data from 59 traditional hedge funds obtained through the Alternative Investment Management Association.
Despite ongoing challenges, PwC’s survey highlights the resilience of cryptocurrencies within the hedge fund industry, showcasing that many funds remain committed to and optimistic about increasing their crypto investments this year.