Despite bearish trend, hedge funds are dipping their toes in crypto: PwC

According to a new study from PricewaterhouseCoopers, or PwC, traditional hedge funds are slowly adopting investments in cryptocurrencies, but maintaining their limited exposure as the market continues to mature.

In its 4th Annual Global Crypto Hedge Fund Report 2022, PwC said roughly one-third of traditional hedge funds surveyed are already investing in digital assets such as Bitcoin (BTC). Hedge funds called "multi-strategies" were the most likely to invest, followed by macro and equity strategy companies, respectively.

Of the hedge funds currently invested in the crypto domain, 57% have allocated less than 1% of their total assets under management. Two-thirds of companies currently invested expect to increase their exposure by the end of 2022.

Respondents cited "regulatory and tax uncertainty" as the single greatest barrier to investment. Specifically, hedge funds are concerned about a fragmented global regulatory environment and unclear guidelines on how the asset class will be governed.

A total of 89 hedge funds were included in the survey that was conducted in the first quarter of 2022.

Hedge funds and other traditional asset managers have been eyeing developments in the crypto sector to gauge whether they should begin investing in the space. While several hedge funds have launched crypto divisions and started investing in the space, the majority of firms remain on the sidelines. Interestingly, a 2021 survey of 100 global hedge funds revealed that managers expect to allocate an average of 10.6% to crypto within five years.

Related: What motivates institutions to invest in cryptography? David Olsson from BlockFi discusses.

Although crypto assets have been in a protracted bear market for much of 2022, institutional investors appear to be buying the most recent price drop. Inflows into Bitcoin investment products, such as exchange-traded funds and Grayscale’s GBTC product, increased by $126 million last week, according to CoinShares. Bitcoin investment funds have quietly added over 500 million dollars in net entries this year.