Crypto hedge funds expect digital assets will be up by the end of the year

Traditional hedge funds already invested in crypto intend to stick with their positions or potentially increase their exposure, the study found

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A majority of crypto-native hedge funds expect higher market capitalizations for digital assets by the end of 2023 compared to 2022, according to a PwC study released Thursday.

Bitcoin has demonstrated an upward trend since the end of last year, with an 85% year-to-date rally alongside recoveries in global equity indexes. The total crypto capitalization has jumped 50% in that time, from $828 million to $1.25 trillion, with bitcoin making up about half.

“Despite market volatility, a fall in digital asset prices and the collapse of a number of crypto businesses, investment in crypto assets is expected to remain strong in 2023,” John Garvey, global financial services leader at PwC US, said in the report.

The study separately found the percentage of traditional hedge funds investing in crypto assets declined from 37% last year to 29%, as the crypto landscape grappled with regulatory strife in the US.

Still, those hedge funds already invested in crypto assets intend to uphold or even increase their exposure, regardless of market volatility and regulatory challenges, it noted.

The report utilized data from two separate surveys, one involving 131 crypto-native hedge funds and the other gathering information from 59 traditional hedge funds.

Traditional funds more interested in tokenization than crypto-natives

Traditional hedge funds showed more interest in blockchain-powered assets and securities, with around 25% exploring tokenization. 

However, unlike last year when one in five traditional hedge funds invested in non-fungible tokens (NFTs), no hedge funds reported NFT investments this time.

Among the crypto hedge funds surveyed, market neutral strategies, designed to generate profits irrespective of market direction, remained the preferred choice.

Meanwhile, the usage of discretionary long-only strategies rose from 14% in the last survey to 19%, while more quantitative long-and-short styles fell from 25% to 18%.

In terms of response to regulatory enforcement, 12% of crypto hedge funds were found contemplating a shift from the US to jurisdictions that offer a more favorable environment for crypto.


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