Nearly half of hedge funds focused on traditional assets have now started investing in cryptocurrencies, as increasingly clear regulations and the launch of exchange-traded funds in the US and Asia attract more investors to the asset class, according to a new survey.
Among hedge funds trading in traditional markets, 47% have invested in crypto assets, up from 29% in 2023 and 37% in 2022, according to the Crypto Hedge Fund Investment Report released today by the Alternative Investment Management Association and research firm PricewaterhouseCoopers. Of those funds that have already invested in these assets, 67% plan to maintain the same level of capital invested in cryptocurrencies, while the rest plan to invest more by the end of 2024, the survey found.
While many hedge funds first entered cryptocurrencies through spot trading, they are increasingly moving toward more complex strategies. Of the funds involved in cryptocurrencies, 58% traded derivatives contracts in 2024, compared to 38% in 2023, while spot trading fell to 25% this year from a peak of 69% last year, according to the report.
“The results of this year’s report indicate a steady recovery in investor confidence over the past year,” James Delaney, managing director of asset management regulation at the Alternative Investment Management Association, said in an interview. “The regulatory clarity that we’re starting to see on a truly global scale is certainly boosting confidence in this asset class.”
Given the high price volatility in cryptocurrencies, this often provides lucrative trading opportunities for funds that are willing to take risks.
“Traditional investment strategies can generate much higher returns in the crypto market, as the market is less regulated. Simple market-neutral arbitrage strategies that generate mid-to-high single-digit returns in traditional markets can generate 20% to 30% returns in crypto,” said Edward Chen, co-founder of Parataxis Capital Management, an investment firm focused on crypto assets. He noted that one challenge is investing a large amount of capital in a market that is still much smaller than traditional asset classes.
