Hedge funds around the world are increasing their exposure to cryptocurrencies, using a wide range of routes to invest in the asset class to diversify their holdings and capture gains, a new study by the Alternative Investment Management Association (AIMA) and PwC found.

The study, released earlier this month, surveyed 122 institutional investors and hedge fund managers from across the globe in the first half of 2025, examining both traditional hedge funds that are investing less than half their assets under management (AUM) in digital assets, and crypto fund managers, which allocate more than 50% of their total AUM in crypto assets to gauge market sentiment.

The study found that a growing number of traditional hedge funds are choosing to gain exposure to crypto assets. Over the past year, the share of these funds with exposure to the asset class rose eight points, increasing from 47% in 2024 to 55% this year. On average, they are allocating slightly more of their AUM to crypto at 7%, up from 6% the previous year. However, over half still commit less than 2%, reflecting a cautious approach as most funds are still building familiarity and confidence in the asset class.

Exposure to crypto assets is expected to continue increasing. Among the traditional hedge funds surveyed, 71% are planning to increase their exposure over the next 12 months. Diversification was cited as the primary motivation for 47% of managers, followed by market-neutral alpha (27%) as they seek generate return independently of overall market movements, and asymmetric returns (13%), a strategy which aims to capture more upside than downside.

Favorable regulations drive crypto adoption

This bullishness towards cryptocurrencies among hedge funds is being driven by favorable regulations in the US. Among traditional hedge funds with crypto exposure, 57% reported greater willingness to invest, 29% cited rising investor interest, 14% noted easier access to banking and another 14% are now expanding US operations amid clearer regulations.

Over the past year, 79% have increased allocations, and 71% expect to grow exposure further in the next 12 months.

Crypto-focused fund managers share a similarly positive outlook. 24% see clearer regulatory guidance spurring greater investment, 22% are scaling their US operations, and 16% are benefiting from improved banking access.

Like traditional funds, most also increased their crypto exposure (54%) over the past year, with 56% planning to expand it further in the coming year.

Derivatives, spot and ETFs as the preferred crypto instruments

Among traditional hedge funds, crypto derivatives are the dominant trading instruments, used by 67% of respondents. The figure marks a 9 point increase from 58% in 2024. Crypto derivatives allow managers to take positions on future price movements without holding the underlying assets, and are most popular during period of heightened market volatility.

Ranking second is spot crypto trading, which also grew, rising from 25% in 2024 to 40% in 2025. Spot trading involves buying and selling digital assets at their current market prices. It allows for direct ownership, enabling investors to use their holdings as collateral or for yield generation within decentralized lending pools.

ETFs and exchange-traded products (ETPs) rank third, with 33% of traditional hedge funds gaining exposure to crypto through these instruments. The figure marks a 8 points increase from 25% in 2024.

Spot crypto ETFs were first introduced in the US in early 2024. These funds invest in cryptocurrencies like bitcoin or ether, allowing investors to gain exposure without the need for direct ownership or technical expertise. They trade on traditional exchanges like the New York Stock Exchange (NYSE), making them widely accessible. Currently, more than 20 ETFs are available in the US, holding mostly bitcoin, ether, or a combination of both. The first spot XRP ETF started trading on the Nasdaq last week with more crypto ETFs expected in the coming months.

Stablecoins, decentralized finance as emerging trends

The AIMA and PwC also delves into rising trends, highlighting stablecoins as an instrument gaining traction amid improving regulation. These cryptocurrencies are designed to maintain price stability, usually by being pegged to an underlying asset like the US dollar.

In the US, the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act was signed into law on July 18, marking the US’s first major national cryptocurrency legislation. The bill aims to regulate the stablecoin market, creating a clearer framework for banks, companies and other entities to issue digital currencies.

Total issuance of stablecoins has risen by approximately 50% since the beginning of the year, soaring from US$200 billion to over US$300 billion by the end of November.

Decentralized finance (DeFi) is another emerging era of interest among hedge funds. DeFi refers to financial services being delivered through smart contracts on a programmable, permissionless blockchain. These services are designed to remove third parties and centralized institutions from financial transactions.

43% of the traditional hedge funds with some exposure to digital assets polled by AIMA and PwC plan to expand into DeFi over the next three years, notably through tokenized funds and assets and the use of DeFi platforms.

Barriers to investment

Despite rising adoption and a more supportive regulatory environment, many hedge funds remain hesitant. For the 45% of traditional hedge funds with no current crypto exposure, half have no plans to invest in the next three years, 43% remain undecided, and 7% intend to enter the crypto markets within 12 months.

These players cited investment mandate restrictions (43%), regulatory and tax uncertainty (29%) and reputational risk concerns (14%) as their principal barriers to investors. Internal culture is another key factor, with 50% citing internal skepticism toward crypto. If these barriers were removed, 14% would invest, and 43% would become more open to considering it.

Crypto hedge funds among fastest-growing segments

Crypto hedge funds are among the fastest-growing segments of the hedge fund industry. Average AUM for these funds have reached US$132 million this year, up from US$79 million in 2024 and US$41 million in 2023, reflecting the broader market appetite.

Most crypto hedge funds (91%) manage under US$1 billion, and primarily hold bitcoin (86%), ether (80%), solana (73%), and XRP (37%).

They mainly use spot crypto trading (69%) and crypto derivatives (67%). Yield or reward generation is a priority for 73% of surveyed crypto fund managers, primarily through custodial staking (39%) and liquid staking (35%).

Featured image: Edited by Fintech News Switzerland, based on image by thanyakij-12 via Freepik