Hedge funds become more cautious on crypto after turmoil

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[1/3]Representations of cryptocurrencies dive into water in this illustration taken May 23, 2022. REUTERS/Dado Ruvic/File Photo

LONDON, July 11 (Reuters) – Global hedge funds that do not specialize in crypto assets have grown jittery following recent industry turmoil, leading to an exit from the sector, a survey showed on Tuesday.

The proportion of traditional hedge funds investing in crypto-assets has fallen to 29% this year from 37% in 2022, according to the report by PWC and the Alternative Investment Management Association (AIMA).

A quarter of those currently invested said heightened uncertainty over U.S. regulation of the sector could lead them to reconsider the asset class altogether, he added.

Market events over the past year affected the investment decisions of more than 70% of the 59 hedge funds surveyed, which oversaw combined assets of $280 billion, according to the report.

The crypto industry was rocked last year by a series of bankruptcies at major crypto companies, including major US exchange FTX. Investors suffered heavy losses as token prices fell and various companies froze customer withdrawals.

While bitcoin’s price has steadily rallied this year, investors remain cautious as U.S. regulators have stepped up action against what they see as an industry-wide culture of lawlessness. .

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“The digital asset space has had to address shortcomings in its fundamental operations, including risk management, as well as allegations of corporate malfeasance,” AIMA chief executive Jack Inglis said in the statement. report.

Traditional hedge funds that avoided trading in crypto said deterrents included reputational risk, a lack of clear guidance from regulators and tax authorities, and unreliable data.

More than half of respondents not yet using crypto said they would wait for further updates to regulate it, according to the report.

Hedge funds investing in crypto primarily use bitcoin or Ethereum. Hedge fund strategies investing in crypto-assets included multi-strategy (41%), systematic (29%), macro (12%) and equity (12%).

Nearly half of hedge funds that were already trading cryptos said they would put more money into it, but those cryptos only accounted for 2% of assets under management.

Reporting by Nell Mackenzie and Elizabeth Howcroft; Editing by Dhara Ranasinghe and Alexander Smith

Our standards: The Thomson Reuters Trust Principles.

Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and money that generates “Web3”.

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