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Family Offices and HNWI Dominate Crypto Hedge Fund Industry, Which Doubled in 2019

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According to a new survey from PwC and Elwood Asset Management Services Ltd., an investment firm specializing in digital assets, crypto-focused hedge funds’ assets under management (AUM) spike in 2019.

The total AUM of these cryptocurrency-focused hedge funds doubled last year, rising from $1 billion in 2018 to over $2 billion in 2019.

The average per fund also jumped from $21.9 million to $44 million, reported Bloomberg.

2019 was the year the price of bitcoin surged upward 95%. Ending 2018 at about $3,850, BTC price soared to a high of $13,900 in 2019 only to end the year at nearly $7,200.

“The volatility of crypto markets offers many opportunities for quant traders,” said Henri Arslanian, PwC global crypto leader, and partner.

“THE PERFORMANCE OF CRYPTO QUANT FUNDS TENDS TO BE MORE LINKED WITH MARKET VOLATILITY RATHER THAN MARKET PERFORMANCE.”
Crypto Hedge Fund Industry to Grow Significantly, Litecoin top Traded Altcoin

Out of these finds, discretionary long-only funds had the best median performance of 40% with average gains of 42%. Discretionary long and short had both an average and median advance of 33%.

Quantitative funds saw an average gain of 58% and a median increase of 30%, the difference between the two figures implies there were some outsized outperformers. Multi-strategy funds saw a median increase of 15%.

When it comes to investors of these hedge funds, Family offices lead with 48% share followed by high-net-worth individuals (HNWI) at 42%.

Venture-capital funds or funds-of-funds and foundations or endowments accounted for only a few percent. However, none of the respondents cited pension funds. Arslanian said:

“I EXPECT THE CRYPTO HEDGE FUND INDUSTRY TO GROW SIGNIFICANTLY OVER THE COMING YEARS AS INVESTING IN A CRYPTO FUND MAY BE THE EASIEST AND MOST FAMILIAR ENTRY POINT FOR MANY INSTITUTIONAL INVESTORS LOOKING AT ENTERING THIS SPACE.”
As we reported, Grayscale had a record quarter first of 2020, despite the bitcoin price crash by about 50% in a day in line with stock markets triggered by coronavirus fear, dominated by hedge funds.

Last week, Paul Tudor Jones announced that he is buying bitcoin, calling it a hedge against inflation. He also said his fund could allocate to bitcoin futures.

Before that, $75 billion hedge fund Renaissance Technologies said its Medallion Fund is “permitted to enter into bitcoin futures transactions.”

According to the survey, 97% of the respondents traded Bitcoin (BTC), 67% Ether (ETH), 38% XRP, Litecoin (LTC), 31% Bitcoin Cash (BCH), and 25% EOS. The report said,

“IT IS INTERESTING TO NOTE THAT LITECOIN WAS MENTIONED BY FUNDS AS ONE OF THEIR TOP TRADED ALTCOINS DESPITE ITS MARKET CAP BEING RELATIVELY SMALLER THAN THE OTHER MENTIONED ALTCOINS.”
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