Crypto Adoption: Hedge Funds Set to Buy More Crypto Despite Market Dip

Hedge Funds set to buy more cryptos despite the market dip. This will be a good opportunity for more crypto adoption.

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Given the recent consistency in the bear zone shown by the crypto market, hedge funds still buy crypto although many will argue that most investors and crypto users will slow their investment in the crypto market.

This might be true in most cases but is not the case for hedge funds, as most traditional hedge funds are still investing heavily in digital assets, notwithstanding the bear market of cryptocurrency in recent times.

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According to PricewaterhouseCoopers’ (PwC) 4th Annual Global Crypto Hedge Fund Report, 89 hedge funds participated in a poll recorded in Quarter 1 2022.

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According to the analysis, 38% of traditional hedge funds already invested in bitcoin, up from 21% a year ago. Furthermore, two-thirds of those surveyed who are now investing in digital assets intend to raise their investment by the end of 2022. 

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Crypto Adoption,hedge funds

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In 2021, the total assets under the management of crypto hedge funds (as opposed to traditional hedge funds) increased by 8% year after year to $4.1 billion in 2021. 

According to CoinMarketCap data, the overall crypto market capitalization dropped around 24% from $1.623 trillion a year ago to $1.234 trillion on June 9.

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Despite the fact that hedge funds are becoming increasingly interested in crypto, the survey found that more than half of them, or 57%, had less than 1% of their total assets under management, or AUM, in digital assets. 

Only approximately 5% of hedge funds have an intimate knowledge of digital assets, with 20% to 50% of their assets invested in the sector.

Bitcoin was the most widely traded digital asset among crypto hedge funds, followed by Ether, Solana, Polkadot, Terra, and Avalanche.

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Crypto Regulations a Significant Barrier to Investment

Even though more traditional hedge funds are investing in cryptocurrency, the majority of them are still cautious. According to a study, 57% said cryptocurrency accounted for less than 1% of their overall assets under management (AUM).

In addition, 41% of asset managers who do not invest in digital assets say they are unlikely to do so in the next three years. Another 31% are interested in cryptocurrency but would like to wait until the market has matured.

For those not involved in crypto investing, crypto regulations are a major barrier. In contrast, hedge funds with profound knowledge of crypto say the lack of tax and regulatory clarity is a key obstacle.

Although the crypto market comes with risks and volatility, traditional hedge funds have not been deterred from pursuing crypto investments, according to John Garvey, Global Financial Services Leader, PwC United States.

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“The markets are still relatively immature, and some of the trading techniques and technologies are developing, so as that grows and becomes more mature — like the equities market in the late 1990s, when there were alternative trading systems,” Garvey pointed out. “Eventually, it became very efficient, and there was a consolidation, which I think will happen on the exchange side of the crypto market as well.”

He also insisted that as time goes on, people will be able to trade into larger and larger pools of liquidity, and even if trading volumes are low during uncertain times, long-term growth will continue.

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