- Crypto hedge funds have invested heavily in store-of-value-based cryptos (86%), DeFi-based cryptos (78%), and infrastructure-based cryptos (74%).
- USDC was the most preferred stablecoin by the hedge fund managers.
Given the multifaceted nature of cryptocurrencies, institutional funds are invested in various segments of the digital assets landscape. In addition to the investments, the hedge funds use different instruments like staking, borrowing, and lending to earn from these digital assets.
According to data from PricewaterhouseCoopers (PwC), crypto hedge funds have invested heavily in store-of-value-based cryptos (86%), DeFi-based cryptos (78%), and infrastructure-based cryptos (74%). Other areas such as exchanges and entertainment (51% & 48%) have seen lower adoption, while data & cloud, banking, and enterprise have seen less than 30% of hedge funds flow into them.
However, the fact that 48% of the sample invests in the entertainment industry illustrates how quickly crypto hedge funds are implementing new assets to trade. The entertainment sector is dominated by NFT, gaming, and metaverse tokens, all of which experienced a rapid rise in price in 2021 after the mass adoption of NFTs.
This report also finds that Ethereum alternatives and scaling solutions gained traction in 2021, leading to the emergence of new layer-1 smart contract platforms like Solana and Avalanche, or such ETH scaling solutions as Polygon. As we can see in the chart below, allocation to BTC reduced in 2021 as compared to 2020. On the other hand, hedge funds increased their holdings in ETH and other L1 tokens.
Another interesting trend that was observed in the past year was that USDC was the most preferred stablecoin by the hedge fund managers. This can be attributed to the fact that USDT, the largest stablecoin in the industry, has been riddled with controversies. After the UST de-peg, USDT for a brief period, lost its peg to the dollar, another reason why investors don’t feel “stable” with USDT.
The wide variety of sectors crypto hedge funds have invested in last year clearly shows a form of diversification that was not present in earlier years. This shows the continuing maturation of the industry as a whole. As the number of crypto hedge fund entrants expands and blockchain and cryptocurrencies become more prevalent, the distribution of sectors is expected to expand further.