Crypto Hedge Fund Industry Assets Surge to Record US$3.8B

Crypto Hedge Fund Industry Assets Surge to Record US$3.8B

by June 7, 2021
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Last year, cryptocurrency hedge fund assets nearly doubled to hit a new record as the industry delivered outstanding performance.

Amid a crypto market bull run, total assets under management (AuM) of crypto hedge funds surged from just over US$2 billion in 2019, to more than US$3.8 billion in 2020, according to PwC’s 3rd Annual Global Crypto Hedge Fund Report 2021.

The report, which shares the results of survey-based research conducted in Q1 2021 by Elwood Asset Management, combined with qualitative inputs from PwC’s crypto team, shows a median performance of 184% in 2020, vastly higher than 2019 at 17%.


Total AuM of crypto hedge funds globally, PwC's 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Total AuM of crypto hedge funds globally, PwC’s 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Cryptocurrencies have had a blockbuster year with total market capitalization surging 132% since the beginning of 2021. The market bull run, which began towards the end of 2020, drove the price of bitcoin to a new all-time high of over 64,800 USD/BTC in mid-April 2021.

That same month, total market capitalization surpassed the US$2 trillion mark for the first time with so-called altcoins, or cryptocurrencies other than bitcoin, driving most of the rise.

Looking at crypto hedge funds data, the effect of the 2020/2021 crypto bull market is clearly visible, the PwC report says, noting that the proportion of funds managing larger amounts of assets was considerably higher in 2020, compared to 2019.

In 2020, the percentage of crypto hedge funds with AuM over US$20 million increased from 35% in 2019 to 46%. At the other end of the spectrum, the number of funds with smaller AuMs decreased from more than 80% in 2019 to about 55% in 2020.

Crypto hedge fund AuM distribution, PwC's 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Crypto hedge fund AuM distribution, PwC’s 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Similarly, the average AuM for this year’s surveyed funds increased from US$12.8 million in 2019 to US$42.8 million in 2020, while the median AuM rose from US$3.8 million to US$15.0 million.

Crypto trends and price predictions

The survey’s results indicate rapid adoption of decentralized finance (DeFi) by crypto hedge funds with 31% of surveyed companies utilizing decentralized exchanges (DEXs).

DEXs are a type of crypto exchange which allows for direct peer-to-peer (P2P) crypto transactions to take place online securely and without the need for an intermediary. Promised benefits include increased privacy, safety and transparency.

Uniswap was found to be the most widely used DEX (15.7%), followed by 1inch (7.9%) and SushiSwap (4.5%).

Top 5 most used decentralised exchanges by crypto hedge funds, PwC's 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Top 5 most used decentralised exchanges by crypto hedge funds, PwC’s 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Crypto hedge funds were also asked about their predictions for the price of bitcoin and the overall crypto market for the end of 2021.

Results show that fund managers are broadly bullish, with the majority (65%) forecasting that the price of bitcoin will be in the US$50,000 to US$100,000 range. Another 21% predict that the price of bitcoin will stand anywhere between US$100,000 and US$150,000 on December 31, 2021.

Distribution of Bitcoin price predictions for the end of 2021, PwC's 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Distribution of bitcoin price predictions for the end of 2021, PwC’s 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

With regards to total market capitalization, over 76% of funds are confident that it will finish the year above current levels with the median predicted level at US$3 trillion. Over 60% believe that total market capitalization will be in the US$2 trillion to US$5 trillion range.

Distribution of cryptocurrency market cap predictions for end of 2021, PwC's 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Distribution of cryptocurrency market cap predictions for end of 2021, PwC’s 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Crypto hedge fund industry

PwC estimates that there are currently between 150 and 200 active crypto hedge funds. Four in five active crypto hedge funds were launched between 2017 and 2020 (81%), showcasing the correlation with the price of bitcoin and the broader crypto market.

Launch of new crypto hedge funds appears correlated to the price of Bitcoin, PwC's 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Launch of new crypto hedge funds appears correlated to the price of Bitcoin, PwC’s 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

High-net worth individuals (HNWIs) were found to be the most common investor type in crypto hedge funds, with more than half of funds mentioning them as the most common investor type. Family offices come second (30%) and funds of funds, a distant third (4%).

Most common investors in crypto hedge funds, PwC's 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Most common investors in crypto hedge funds, PwC’s 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

The research found that although there are many smaller funds, assets are highly concentrated among the largest hedge funds, with the top-10 largest ones controlling over 60% of total AuM.

Hedge funds increasingly investing in digital assets

The research also found that traditional hedge funds are increasingly investing in digital assets. Out of these surveyed, 21% are investing in digital assets with an average percentage of total AuM allocated standing at 3%.

86% of those investing in digital assets intend to deploy more capital into the emerging asset class by the end of 2021. The remainder (14%) plan to maintain the same level of capital.

When asked about the main motivations for including digital assets in their portfolio, hedge fund managers cited “general diversification” as the top reason (57%), followed by “exposure to a new value-creation ecosystem” (29%), and “inflation hedge” (14.3%).

Breakdown of participants- Are you currently investing in digital assets?, PwC's 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Breakdown of participants: Are you currently investing in digital assets?, PwC’s 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

Out of the 80% of hedge funds not investing in digital assets, the majority cited regulatory uncertainty (81.8%) as the main obstacle, followed by client reaction/reputational risk (77.4%), and lack of infrastructure/service provider availability (71.4%).

Nevertheless, 9% are in late-stage planning to invest in digital assets, and 17% are looking to invest.

What are the main obstacles to investing, PwC's 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

What are the main obstacles to investing, PwC’s 3rd Annual Global Crypto Hedge Fund Report 2021, May 2021

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