PricewaterhouseCoopers (PwC), one of the “big four” accounting firms, has released its “3rd Annual Global Crypto Hedge Fund Report 2021” in conjunction with the Alternative Investment Management Association (AIMA) and Elwood Asset Management.
The report underscored the success that hedge funds holding cryptocurrency saw this year and emphasized that bitcoin is far and away the leading asset in the class.
OVERALL SUCCESS IN CRYPTOCURRENCY HEDGE FUNDS
The report found that the total assets under management (AUM) of cryptocurrency hedge funds increased to $3.8 billion, up from $2 billion in the previous year. Additionally, the median hedge fund returned 128% on its investment.
The best performance strategy for crypto hedge funds was Discretionary Long Only (which saw a rise of 294%), a strategy that emphasizes taking a longer time-frame for investments and holding more in liquid cryptocurrencies.
Beyond the substantial growth of cryptocurrency hedge funds over the past year, the report also illustrated how bitcoin has maintained the dominant position, both within these cryptocurrency hedge funds and in more traditional funds.
BITCOIN LEADS THE WAY
92% of cryptocurrency hedge funds maintain exposure to bitcoin, according to the report. This is compared to ether, which is held in just 67% of the funds reported on. Bitcoin is not only the most common investment across all of these funds, but it also makes up a substantial portion of trading volume. 56% of crypto hedge funds indicated that at least half of their daily trading volume is in bitcoin and 15% of cryptocurrency hedge funds trade exclusively in bitcoin.
The report also demonstrated that cryptocurrency hedge funds remain incredibly bullish on bitcoin. The report found that the median predicted price for bitcoin by the end of 2021 was $100,000. Furthermore, 21% of cryptocurrency hedge funds predicted that the year-end price would be between $100,000 and $150,000.
Of the hedge fund managers surveyed, only one believed that the price of bitcoin would be below $59,000 by the end of the year.
The derivatives market for bitcoin has exploded over the past year, trading in billions of USD per day compared to just hundreds of millions in the previous year. The report found that “the increased number of players and liquidity is rapidly transforming the cryptocurrency derivatives market, enabling widespread institutional adoption.”
Around one fifth of traditional hedge funds are investing in digital assets (21%) and more than 85% of those funds intend to put more capital into the cryptocurrency asset class by the end of 2021. Over half of traditional hedge funds reported that they planned to invest in cryptocurrencies within the next year.
As for the less convinced traditional funds, most cited “regulatory uncertainty” as the cause for their hesitation. However, 64% agreed that “if the main barriers were to be removed they would definitely start/accelerate their involvement/investment or potentially change their approach and become more involved.”