A recent report from PwC has highlighted an interesting dynamic: despite an overall decrease in traditional hedge funds’ participation in crypto, confidence in the sector’s long-term prospects seems stronger than ever. Though this might seem counterintuitive, given the current scenario marked by market volatility and regulatory ambiguities.

However, the tenets of investment remain to be a reminder that a dip in engagement does not necessarily translate to a lack of confidence. Sometimes, it merely signifies a period of recalibration and consolidation.

Hedge Funds Retain Confidence In Crypto

The PwC study, published on Wednesday, offers a unique insight into the complex world of crypto investments. It unveiled a notable decline from 37% to 29% in traditional hedge funds’ engagement with crypto during 2023. This dip in involvement, however, is met with an enduring belief in the long-term sustainability of digital assets.

Despite the volatile market fluctuations and persistent regulatory ambiguities, these traditional hedge funds with existing crypto investments remain unswayed. The resilience of their engagement demonstrates a firm commitment to the crypto realm.

The report further reveals that these entities are prepared to either maintain or boost their crypto exposure. This shows solid confidence in the staying power of this innovative asset class, despite the evident challenges.

Investment Increases Despite Regulatory Hurdles

Within the past year, traditional hedge funds have demonstrated their commitment to the crypto sector, with the average allocation to crypto ascending from 4% to 7%. The survey, which involved both traditional and crypto hedge funds, exposed an intriguing dichotomy.

Over 50% of traditional funds anticipate steering clear from crypto investments in the subsequent three years. Yet, an overwhelming 93% of the crypto hedge funds predict a surge in overall crypto market capitalization by year-end.

John Garvey, a global financial services leader at PwC US, acknowledged the market’s hurdles, including price drops, volatility, and a number of failed crypto enterprises. Despite these adversities, Garvey expressed that investment in digital assets is anticipated to remain robust throughout 2023, with long-term dedicated hedge funds amplifying their crypto assets under management.

Notably, the regulatory landscape remains a potent influencing factor for hedge funds’ strategies as the PwC study uncovered that 23% of traditional hedge funds are reconsidering their crypto approach due to US regulations.

In contrast, 12% of crypto hedge funds are contemplating relocation away from the US, indicating widespread apprehension about regulatory uncertainties.

Meanwhile, the global crypto market, in the last 24 hours has seen a slight dip of 0.3%, hinting at a slowdown in market momentum. This downturn is also reflected in the overall market valuation. Almost $10 billion has been wiped off in the same timeframe, bringing the global crypto market’s total valuation to a current $1.147 trillion, as of the time of writing.

Featured image from Unsplash, Chart from TradingView