The 3rd Annual Global Crypto Hedge Fund Report 2021 by PricewaterhouseCoopers

This is an interesting crypto research made by PwC Global Crypto, and released recently. The research provides a useful insight into the crypto hedge funds and their market behavior by comparing 2020 to 2019.

The Crypto Research in Short

The research shows that currently there are between 150 and 200 active crypto hedge funds. Most of these crypto funds (81%) were launched between 2017 and 2020. The total assets under management (AUM) of crypto hedge funds increased to over 3.8 billion USD in 2020 from 2.0 billion USD in 2019.

  

Crypto Hedge Fund Profile

Locations

Most crypto funds are domiciled in the Cayman Islands (34%). Other key headquarter locations include the United States (33%), and Gibraltar (9%).

• Cayman Islands (34%)
• United States (33%)
• Gibraltar (9%)
• British Virgin Islands (8%)
• Luxembourg (3%)

Compared to 2019, the Cayman Islands and the United States have maintained their top position, however, their market share has declined (Cayman Islands - 42% to 34%) and (United States -38% to 33%). Conversely, Gibraltar is increasing its market share.

• Crypto hedge fund managers are situated in the United States (43%), followed by the United Kingdom (19%), and Hong Kong (11%).

Assets Under Management

The median crypto fund manages 15 million USD, has 300,000 USD in annual revenue, and an average payroll with 6 employees. Family offices create the most common investor type.

□ The average assets under management (AUM) for 2020 increased to 42.8 million USD

□ The median assets under management (AUM) for 2020 increased to 15.0 million USD

□ The percentage of funds managing over 20 million USD increased to 46% in 2020, from 35% in 2019

□ They charge on average a 2% management fee

 

Favorite Trading Activity

As concerns the daily trading activity, BTC runs the show (56%), while 15% of all crypto hedge funds are pure Bitcoin funds and trade only Bitcoin. Crypto hedge funds mainly trade 15 altcoins.

Altcoins (excluding stablecoins)

The top traded altcoins by daily volume were

□ Ethereum (ETH, 67%)

□ Litecoin (LTC, 34%)

□ Chainlink (LINK, 30%)

□ Polkadot (DOT, 28%)

□ Aave (AAVE, 27%)

It is interesting that Litecoin and Chainlink are the second and third most traded altcoins, but their current market values are far lower than Polkadot and Cardano. It is also notable that Aave is the fifth most traded altcoin by hedge funds.

Image: Most-Traded Cryptocurrencies by Crypto Funds

 

Derivatives & Short Selling

A 56% of crypto hedge funds trade derivatives, however, short-selling has drastically reduced in 2020, from 48% to 28%. Crypto hedge funds are also involved in:

□ Crypto staking (42%)

□ Lending (33%), and

□ Borrowing (24%)

 

Crypto Hedge Fund Strategies

The most common crypto hedge fund strategy is the quantitative strategy (37%), followed by the discretionary long/short strategy (28%), the discretionary long-only strategy (20%), the and multi-strategy strategy (11%).

THE 4 CRYPTO HEDGE FUND STRATEGIES EXPLAINED

These are the main four crypto hedge fund strategies:

(1) Quantitative Strategy (37%)

A quantitative approach is either a directional or a market-neutral strategy. Indicative quantitative approaches include:

• Market-making
• Arbitrage (i.e. statistical arbitrage)
• Low latency trading

Liquidity is key for implementing the above strategies and limits hedge funds to only trade highly liquid cryptocurrencies.

(2) Discretionary Long/Short Strategy (28%)

Strategies of this category include a broad category of approaches:

• long/short, relative value, event-driven, and technical analysis approaches
• Mining
• Hybrid strategies that may include investing in the early stages of key crypto projects

(3) Discretionary Long Only Strategy (20%)

This is a longer investment horizon approach. The hedge funds of this category invest in the early stages of promising crypto projects. Moreover, they will buy and hold liquid cryptocurrencies. These crypto hedge funds have the longest lock-up periods for investors.

• Investing in the early stages of promising crypto projects
• Buy and hold liquid cryptocurrencies

(4) Multi-Strategy (11%)

A multi-strategy refers to a combination of the above strategies. The managers may apply discretionary long/short strategies and quantitative sub-accounts.

• Combining multiple strategies

 

 

Crypto Hedge Fund Predictions for 2021

Crypto hedge fund managers remain significantly bullish on Bitcoin for the end of 2021:

-65% of predictions were in the $50,000 to $100,000 range for BTC

-21% of predictions were in the $100,000 and $150,000 range for BTC

 

 

□ Global Crypto Hedge Fund Report 2021

G.P.

7th of June, 2021 (c)

Source:  https://www.pwc.com