Hedge funds reconsider crypto amid US regulatory concerns

investmentnews.com:

The past year hasn’t been easy for the cryptocurrency industry, given market volatility and business failures including the high-profile collapse of the FTX exchange.

However, hedge funds are clear that digital assets are a viable and important part of their investment mix and are not intending to pull back from cryptos in the near term.

A new report from PwC, the Alternative Investment Management Association and CoinShares reveals a decline in the percentage of traditional hedge funds globally that are investing in crypto assets from 37% last year to 29% in 2023.

But respondents still intend to maintain or increase their exposure to cryptos even as market volatility and the regulatory landscape — particularly in the United States — make them more cautious.

Exposure to cryptos remains in single figures, but average allocations have increased from just 4% last year to 7% in 2023, and 93% of poll participants are expecting the market cap of these assets to be higher at the end of 2023.

“Traditional hedge funds, committed to the market in the longer term, are not only increasing their crypto-assets under management, but also maintaining — if not increasing — the amount of capital deployed in the ecosystem,” said John Garvey, global financial services leader for PwC United States.

Half of respondents said recent market volatility had no impact on their crypto investing decision and 27% feel positive about the current market — likely as a result of greater investment opportunities as a result of a broad decline in crypto-asset valuations.

“General diversification” or “long-term outperformance” are the most-cited reasons for investing in cryptos by those funds that already do so.

Bitcoin and Ethereum are easily the most