Hedge Funds Embrace Crypto Amid Regulatory Changes: Report

• Nearly half of hedge funds are now investing in cryptocurrencies, up from previous years.
• A growing number of hedge funds are shifting toward trading crypto derivatives in 2024.
• Most traditional hedge funds are not planning to incorporate BTC ETFs into their strategies.

The number of hedge funds, which are mainly focused on traditional assets, is growing, and more of them are interested in cryptocurrencies. This change is mainly due to the improved rules and the availability of cryptocurrency exchange-traded funds (ETFs) in markets like the U.S. and Asia. A recent survey conducted by the Alternative Investment Management Association (AIMA) and PwC supports this new trend.

Growing Crypto Adoption

According to a report on Friday, 47% of hedge funds that are engaged in trading traditional securities are also involved in trading cryptocurrencies. This is a remarkable rise from 29% in 2023 and 37% in 2022. Among these funds, 67% indicated that they would maintain their crypto investments, while others expressed intentions to increase their crypto holdings by 2024. This is an indication of increasing confidence in the future of digital currencies.

The majority of hedge funds initially started investing in the crypto market through the spot market. However, the survey shows that there is a move towards more sophisticated approaches. As of 2024, 58% of hedge funds are trading in crypto derivatives as compared to 38% in the previous year. 

However, the number of funds that are trading in the spot market has reduced to 25% from 69% in 2023. This trend indicates hedge funds are turning to more sophisticated means of handling their crypto assets.

Skepticism Among Hedge Funds

However, many hedge fund managers are still skeptical about this new investment opportunity. According to the survey, 76% of hedge funds that are not invested in crypto at present are not planning to invest in the near future either. Over the next three years, this percentage is expected to reach 54%, the same as in 2023.

The survey also reveals that 66% of traditional hedge funds have no intention of using Bitcoin ETFs in their crypto strategies. This finding shows that while the interest in digital assets has been rising, many hedge funds are still hesitant to fully allocate their capital to this asset class.

The research was carried out in the second quarter of 2024 and involved 100 hedge funds. Of these, 42% were on traditional assets, and the rest were on cryptocurrencies.

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