A significant shift is occurring in the traditional hedge funds landscape, with nearly half of those focused on traditional assets now incorporating cryptocurrency into their portfolios.
This transition is largely fueled by increased regulatory clarity and the recent introduction of exchange-traded funds (ETFs) in both the United States and Asia, according to a new survey from the Alternative Investment Management Association and PricewaterhouseCoopers (PWC).
The report highlights that 47% of hedge funds operating in traditional markets have ventured into the crypto space, a notable increase from 29% in 2023 and 37% in 2022. Among these funds, a robust 67% plan to maintain their current investment levels in cryptocurrencies, while the remainder is looking to expand their exposure by the end of 2024.
Initially, many hedge funds dipped their toes into crypto by engaging in spot market trading. However, the report indicates a significant evolution in strategy; in 2024, 58% of these funds are now participating in trading derivatives, a marked rise from just 38% the previous year. In contrast, the share of funds trading in the spot market has decreased dramatically, dropping from a high of 69% last year to just 25% this year.
Inside the African Market
The increasing involvement of traditional hedge funds in the crypto market presents both opportunities and challenges for African traders and the continent’s blockchain ecosystem.
Firstly, one significant opportunity is the potential for increased liquidity. The influx of institutional capital can enhance liquidity in crypto markets, thereby making it easier for African traders to buy and sell digital assets.
Moreover, as more traditional investors enter the market, price volatility may be somewhat mitigated. This could provide a more stable environment for African traders, allowing them to confidently engage.
In addition to liquidity and stability, the growing interest from hedge funds could lead to product innovation. This influx of capital might spur the development of new crypto-related products and services specifically tailored to the African market.
Furthermore, the trend towards increased institutional adoption may accelerate regulatory efforts in Africa, creating a more secure and predictable environment for crypto trading.
However, there are also notable challenges that must be addressed. For instance, the dominance of Western hedge funds could create a concentration of power in the crypto market, potentially limiting opportunities for African traders and projects. Additionally, while increased regulatory clarity can be beneficial, it may also pose challenges for African countries with limited resources or infrastructure.
Moreover, the digital divide in Africa could restrict access to crypto markets for many traders, exacerbating existing inequalities.
Despite this burgeoning interest, some hedge fund managers remain cautious. The survey reveals that 76% of those not currently invested in cryptocurrencies are unlikely to change their stance over the next three years, a rise from 54% in 2023. Furthermore, two-thirds of traditional hedge funds do not plan to incorporate Bitcoin ETFs into their crypto strategies.
Conducted in the second quarter and involving 100 hedge funds—42% of which focus on traditional assets while the rest focus on cryptocurrencies—the survey underscores both the growing acceptance of crypto among traditional finance players and the lingering skepticism that continues to shape the market.
As the landscape evolves, it will be interesting to observe how these trends develop and whether the remaining hesitant funds will eventually embrace this digital frontier.
