Crypto Exposure In Nearly Half Of Traditional Hedge Funds, Survey Reveals – What’s Driving Adoption?

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As a seasoned researcher with over two decades of experience in financial markets, I have witnessed numerous shifts and transformations in investment strategies. The recent surge of traditional hedge funds into cryptocurrencies is yet another fascinating development that has caught my attention.

Based on a Bloomberg report, it was revealed that nearly half of conventional hedge funds currently have some involvement in cryptocurrencies. It is anticipated that this level of investment will grow significantly by the end of the year.

Traditional Hedge Funds Venturing Into Crypto

According to a study jointly carried out by the Alternative Investment Management Association (AIMA) and PwC, about 47% of conventional hedge funds are currently involved with digital assets to some extent. This represents an uptick from 37% in the previous year, although it’s a decrease from the 29% reported in 2023.

As a crypto investor, I’ve noticed that approximately two-thirds of hedge funds currently investing in digital assets are planning to keep their existing investment levels in cryptocurrencies until at least the end of 2024. The rest, however, have indicated their intention to boost their crypto allocation over the same period.

The report highlights a shift in hedge fund investment strategies, moving from trading tokens in the spot market to more advanced strategies like derivatives trading.

In 2023, around 38% of the surveyed hedge funds were trading derivatives based on digital assets. The following year, this number increased to 58%. On the other hand, the percentage of hedge funds engaging in spot markets fell from 69% in 2023 to just 25% in 2024.

The escalating transparency in cryptocurrency regulations and the emergence of crypto-based Exchange Traded Funds (ETFs) in countries like the U.S. and Asia are significantly contributing to the growing interest in cryptocurrencies. As expressed by James Delaney, managing director of asset management regulation at AIMA, this trend is noteworthy.

Based on this year’s report, there’s been a consistent increase in confidence levels over the last year. This growth can be attributed to the global emergence of clear regulations, which undeniably strengthens faith in the investment sector.

As digital assets continue to exhibit significant price fluctuations, they present enticing trading possibilities for investment funds that can handle a greater level of risk.

Edward Chin, a partner at Parataxis Capital Management, highlighted the potential for substantial returns using conventional investment tactics because he views the cryptocurrency market as comparatively “inefficient.

In simpler terms, when Chin says “less efficient,” he’s pointing out that the cryptocurrency market has a greater number of unresolved information gaps, price discrepancies, and volatility compared to traditional markets. This situation gives skilled investors an opportunity to exploit these inefficiencies, potentially earning higher returns by employing well-established investment strategies.

Some Hedge Fund Managers Still Hesitant About Crypto

Although many positive findings emerge from surveys about digital assets, a significant number of hedge fund managers remain reluctant to invest in this area. Interestingly, approximately three-quarters (76%) of these funds that do not currently possess digital assets express low probability of making such investments within the next three years – an increase from 54% as recently as 2023.

Some people find the existing regulatory structure for digital assets not fully developed enough to warrant incorporation into their investment portfolios. For example, in July 2023, Nasdaq postponed its intentions to start a cryptocurrency custody service, attributing this decision to the regulatory uncertainties surrounding the new asset class.

In related news, a recent survey in Japan found that the majority of institutional investors are willing to invest in digital assets within the next three years. BTC trades at $61,034 at press time, down 1.5% in the last 24 hours.

Crypto Exposure In Nearly Half Of Traditional Hedge Funds, Survey Reveals – What’s Driving Adoption?

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2024-10-11 06:12