Despite bearish trend, hedge funds are dipping their toes in crypto: PwC

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According to new research from PricewaterhouseCoopers, or PwC, traditional hedge funds are slowly adopting cryptocurrency investing, but are keeping their exposure limited as the market matures.

In its fourth annual Global Crypto Hedge Fund Report 2022, PwC said that nearly a third of traditional hedge funds surveyed are already investing in digital assets such as bitcoin (BTC). So-called “multi-strategy” hedge funds were most likely to invest, followed by macro strategy and equity strategy firms, respectively.

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Of the hedge funds currently invested in the crypto space, 57% have allocated less than 1% of their total assets under management. Two-thirds of firms currently plan to increase their investments by the end of 2022.

Respondents cited “regulatory and tax uncertainty” as the biggest barriers to investment. In particular, hedge funds are concerned about a fragmented regulatory environment globally, as well as unclear guidance on how the asset class will be regulated.

A total of 89 hedge funds were included in the survey, which was conducted during the first quarter of 2022.

Most hedge funds surveyed by PwC have more than $1 billion in assets under management. Source: PwC

Hedge funds and other traditional asset managers are eyeing developments in the crypto sector to determine whether they should start investing in the space. While many hedge funds have launched crypto divisions and started investing in the space, most companies are on edge. Interestingly, a 2021 survey of 100 global hedge funds revealed that managers expect to allocate an average of 10.6% to crypto within five years.

related: What is the Driving Institution for Investing in Crypto? BlockFi’s David Olsen explains

While the crypto asset has been in a prolonged bear market for much of 2022, institutional investors have been buying into the most recent price drop. Bitcoin investment products, such as exchange-traded funds and Grayscale’s GBTC product, raised $126 million last week, according to CoinShares. Bitcoin investment funds have quietly increased net inflows by over $500 million this year.