Tokenization is the biggest opportunity this year, and the market's enthusiasm for NFT has cooled significantly.
Original title: " PwC Global Crypto Hedge Fund Report "
By David Faggard, Dan Barabas, PwC
compile: jk
summary
- The proportion of traditional hedge funds investing in crypto assets fell to 29%, down from 37% last year. However, none of the traditional hedge funds currently plan to reduce their exposure to crypto assets in 2023.
- 23% of traditional hedge funds are re-evaluating their crypto strategies due to the US regulatory environment, while 12% of crypto hedge funds are considering migrating from the US to a more crypto-friendly jurisdiction.
- 93% of crypto hedge funds expect that by the end of 2023, the market capitalization of crypto assets will be higher than in 2022.
- 31% of traditional hedge funds believe that tokenization (Tokenization) is the biggest opportunity in 2023; 25% of traditional hedge funds (including those funds that do not currently invest in encrypted assets) said they are exploring tokenization.
Although the proportion of traditional hedge funds investing in crypto assets has declined from 37% in 2022 to 29% in 2023, confidence in the value proposition and long-term sustainability of crypto assets appears to remain solid.
According to the 2023 Global Crypto Hedge Fund Report, traditional hedge fund respondents currently investing in crypto assets indicated that they would increase or maintain their exposure regardless of underlying market volatility and regulatory hurdles eroding confidence in the asset class.
The report, compiled by PricewaterhouseCoopers (PwC) in partnership with the Alternative Investment Management Association (AIMA) and CoinShares, includes the results of two surveys of traditional and crypto hedge funds.
The report also found that the average allocation to crypto assets managed by surveyed traditional hedge funds increased from 4 percent to 7 percent over the past year. At the same time, 93% of crypto hedge fund respondents expect the market capitalization of crypto assets to be higher by the end of 2023.
Asked about plans to increase their exposure, more than a third (37%) of traditional hedge funds that do not invest in crypto assets said they were curious but were waiting for the assets to mature, up from 30% last year has increased. And 54% of respondents said they were unlikely to invest in the next three years, an increase from 41% last year.
John Garvey, Global Leader, US Financial Services, PwC, said:
“Despite market volatility, declining digital asset prices, and the collapse of some crypto businesses, investment in crypto assets is expected to remain strong in 2023. Traditional hedge funds with long-term commitments to the market are not only increasing their crypto assets under management, but maintaining Even increasing the amount of capital it invests in the ecosystem. However, it is clear that regulatory uncertainty and barriers are increasingly influencing the investment decisions of many funds, with more than half of respondents stating that once greater transparency, regulatory certainty and risk management, they are likely to invest/increase their investment in digital assets.”
Regulatory clarity critical to investor engagement
Crypto hedge funds that invest exclusively in crypto assets are demanding greater transparency and regulatory requirements to mitigate investor risk and boost confidence in the asset class, following the collapse of some crypto businesses in 2022. These requirements include mandatory segregation of assets (cited by 75% of all survey respondents), mandatory financial audits (62%) and independent reporting of reserve assets (60%). Once considered a major factor in choosing a trading venue, Liquidity is now seen as equally important as platform security: 21% of crypto hedge funds surveyed chose Liquidity as the most important consideration, up from 10% last year. % increased. Based on the impact of market events in 2022, more than half (53%) of crypto hedge funds said they had upgraded their counterparty risk management processes.
For traditional hedge funds already invested in crypto assets, concerns have also been expressed about the evolving regulatory environment, especially in the United States. Of these, 23% said it would materially affect them or cause them to reassess the viability of their crypto asset positions. More than half (54%) of traditional hedge funds confirmed they would change their approach and become more interested in the asset class if perceived industry barriers and uncertainties were resolved, up from 29% last year increased. In contrast, crypto hedge funds seem to be relatively indifferent to these regulatory developments, with only a third of respondents expecting to face greater legal and compliance costs, and 12% of respondents believe that current regulations in the United States Circumstances may cause them to move to more crypto-friendly jurisdictions.
Market developments have an impact on investor engagement
Last year’s crypto market events, including the collapse of some crypto asset service providers, were generally viewed as negative by traditional hedge fund respondents: 57% of funds said their outlook was negatively or strongly negatively affected. Of these funds, 70 percent have assets under management of more than $1 billion.
More than two-thirds (71%) of traditional hedge funds surveyed are not currently investing in crypto assets, up from 63% last year. The four main reasons why traditional hedge funds do not invest in crypto assets are consistent with last year’s responses, including: (1) client reaction or reputational risk, (2) lack of regulatory and tax clarity, (3) third-party data is insufficient or unreliable, and (4) beyond the scope of the current investment mandate.
Conversely, the crypto hedge funds surveyed seemed unfazed by recent market volatility, with half (50%) of them saying they had no impact. Nearly a third (27%) are optimistic about the current market, likely due to more investment opportunities arising from broadly falling cryptoasset valuations. In light of last year’s events, 53% of crypto hedge funds reported updating their counterparty risk management processes.
Tokenization as a way of development is getting more attention
Traditional hedge funds have shown greater curiosity about tokenized assets and securities than crypto hedge funds, with a quarter of these funds exploring tokenization. In contrast, only 15 percent of crypto hedge fund respondents reported exploring investing in tokenized securities. Tokenization of funds promises to increase efficiency and reduce friction by enabling faster settlement times and lower operating costs. About one-third (31%) of the traditional hedge funds surveyed cited tokenization as the biggest growth opportunity in the crypto asset space in the coming year.
The investment strategies of traditional hedge funds and crypto hedge funds diverge
"Portfolio diversification" or "long-term excess return" is the most common reason why traditional hedge funds include crypto assets in their portfolios. More than half (54%) of traditional hedge funds currently investing in crypto assets said they intend to maintain the same level of capital allocation this year. 46% of funds said they planned to increase exposure to the asset class by the end of 2023, down from 67% last year.
The vast majority (91%) of traditional hedge fund investors who have invested in crypto assets say they hold the two largest crypto assets by market capitalization and trading volume — Bitcoin and Ethereum — which is down from 67% last year. increased, indicating their shift toward large-cap coins and reflecting a more conservative investment approach.
None of the respondents said they invested in NFTs, and one in five traditional hedge funds invested in NFTs last year, indicating that since the peak of NFTs in 2021, the market's enthusiasm for NFTs has cooled significantly.
Among crypto hedge funds surveyed, market-neutral strategies remain the most popular strategy, although usage has dropped from 30% to 20% compared to the previous survey. Conversely, the use of discrete long-only encryption strategies increased from 14% to 19%, while the use of quantitative long-short encryption strategies decreased from 25% to 18%. This evolution may have more to do with the current market environment than an overall shift in long-term trading strategies. All crypto hedge fund strategies posted losses, with the exception of market-neutral strategies.
Jack Inglis, CEO of AIMA, said:
“The digital asset space has had to confront shortcomings in its fundamental operations, including risk management and allegations of corporate misconduct. Investor interest in the space has shown some resilience in some new areas, notably tokenization, This will provide the basis for industry players in rebuilding the confidence of institutional investors and traditional hedge funds in their allocation to this asset class.”
Alexandre Schmidt, index fund manager at CoinShares, said:
“Crypto hedge funds have shown impressive resilience in the complex environment of 2022. Most funds surveyed have generated positive Alpha returns, underscoring the important role these firms play in the digital asset ecosystem. In our Regulators are an impediment in the near term as we travel through 2023 and beyond, but this will pave a clearer path for long-term investing in digital assets, facilitating higher adoption from small retail investors to large institutional investors Rate."
