Traditional Hedge Funds Expand Crypto Exposure Amid Regulatory Clarity and Spot ETF Launches: AIMA Report

Nearly half of hedge funds traditionally focused on standard asset classes now have exposure to cryptocurrencies, according to an article by Olga Kharif published earlier today by Bloomberg.

According to Bloomberg, a recent survey by the Alternative Investment Management Association and PwC found that 47% of hedge funds investing in traditional markets have ventured into crypto assets this year. This figure represents a significant rise from 29% in 2023 and 37% in 2022. Of the hedge funds already involved in digital assets, 67% plan to maintain their current levels of capital investment, while the rest expect to increase their exposure by the end of 2024, Bloomberg reported.

The survey highlights a shift from hedge funds primarily trading crypto tokens in spot markets to using more advanced strategies. Bloomberg noted that in 2024, 58% of hedge funds with crypto exposure traded derivatives, a sharp increase from 38% in 2023. Meanwhile, the share of funds trading in spot markets dropped to 25% this year from a high of 69% in 2023.

James Delaney, managing director of asset management regulation at AIMA, told Bloomberg that the rising confidence in crypto markets is largely due to enhanced global regulatory clarity. He explained that this growing clarity is making the asset class more appealing to hedge funds, offering lucrative opportunities despite the cryptocurrency market’s notorious price volatility.

Despite these opportunities, not all hedge fund managers are ready to invest in digital assets. Bloomberg reported that 76% of hedge funds not currently invested in crypto said they are unlikely to change their stance in the next three years, up from 54% in 2023. Many cite the exclusion of crypto from their investment mandates as the main barrier to participation. The Bloomberg report also highlighted that two-thirds of traditional hedge funds have no plans to incorporate spot Bitcoin ETFs into their digital asset strategies.

According to Bloomberg, of the 100 hedge funds that participated in the survey, 42% were focused on traditional assets, while the remaining 58% primarily invested in cryptocurrencies. The survey, conducted in the second quarter of 2024, came shortly after Bitcoin reached its all-time high in March. As of now, Bitcoin is trading around 18% below that peak.

In August, PwC’s global financial services and digital assets leader, John Garvey, told Financial News in an interview that emerging economies are driving the next wave of cryptocurrency adoption.

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