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

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As a seasoned researcher with years of experience navigating the ever-evolving financial landscape, I find the recent trend of hedge funds diving into cryptocurrencies intriguing and not entirely surprising. The surge in interest from traditional asset managers is a testament to the maturing of digital assets as an investment class, driven by improved regulatory clarity and growing confidence in the market.

Approximately half of the conventional hedge funds that typically invest in traditional assets now hold investments in cryptocurrencies, as reported by an article penned by Olga Kharif for Bloomberg today.

Based on a survey by the Alternative Investment Management Association and PwC, revealed by Bloomberg, it was found that about half (47%) of hedge funds investing in traditional markets have moved into cryptocurrencies this year. This is a substantial increase from the 29% reported in 2023 and 37% in 2022. Among those already involved with digital assets, approximately two-thirds (67%) intend to keep their current investment levels, while the remaining third plans to boost their crypto holdings by the close of 2024, as reported by Bloomberg.

The survey indicates a change in the way hedge funds are handling crypto tokens, moving towards more complex trading strategies. As per Bloomberg’s observations, the proportion of hedge funds engaging in derivative trading with cryptocurrencies jumped significantly from 38% in 2023 to 58% in 2024. Simultaneously, the number of funds trading in spot markets has declined noticeably this year, falling from a peak of 69% in 2023 to just 25%.

James Delaney, who serves as the managing director of asset management regulation at AIMA, spoke with Bloomberg and shared that increased confidence in the crypto markets is largely because of improved global regulatory understanding. He added that this growing clarity is making the asset class more attractive to hedge funds, providing profitable opportunities even amidst the cryptocurrency market’s well-known price fluctuations.

Although numerous chances exist for hedge fund managers to invest in digital assets, not all are prepared to do so at this time. According to a Bloomberg report, as much as 76% of hedge funds currently not involved in cryptocurrency say they are unlikely to alter their stance within the next three years – an increase from 54% in 2023. The main reason for this reluctance is that crypto assets are often omitted from the investment mandates of these funds. Furthermore, the Bloomberg report indicates that around two-thirds of traditional hedge funds have no intention of incorporating spot Bitcoin ETFs into their digital asset strategies.

Based on a Bloomberg survey from Q2 2024, about 42% of the 100 hedge funds questioned primarily dealt with conventional assets, while approximately 58% mainly invested in cryptocurrencies. This survey took place shortly after Bitcoin hit its record high in March. At present, Bitcoin is trading at around 18% lower than that peak price.

During August, John Garvey, the worldwide head of financial services and digital assets at PwC, shared with Financial News in an interview his belief that developing countries are spearheading the upcoming surge in cryptocurrency usage.

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2024-10-10 12:34