Several reports have recently been published on crypto asset managers, crypto-focused hedge funds, and family offices that shed light on the current state of crypto investment and suggest that the fears of the bear market are giving way to moderate optimism and renewed interest in crypto.

Rising AUM for Crypto Asset Managers

Crypto asset management has emerged as a convenient solution for investors seeking exposure to cryptocurrencies without the complexities associated with direct ownership and custody.

CCData, a digital asset data provider, is regularly publishing reports on crypto asset management, and since the beginning of 2023, they show a consistent upward trend. In April, the total AUM (assets under management) for crypto asset investment products experienced a 7% increase, reaching $33.6 billion. This growth marks the fifth consecutive month of expansion, resulting in a year-to-date increase of 70%, highlighting the growing confidence in the sector.

With $23 billion of AUM, the US-based Grayscale is still the biggest crypto asset manager in the world, covering two-thirds of the market.

BTC Dominance in Asset Allocation

Bitcoin continues to dominate the market as the preferred choice for institutional investors seeking exposure to the crypto space. Among the crypto asset managers, a noteworthy 72% of AUM is allocated to BTC-based products.

Ethereum-based products represent 23.4%, gaining a bit of additional market share after the successful Shanghai upgrade.

Institutional Interest in Crypto ETFs

The next big thing that could propel crypto investments could be ETFs, or exchange-traded funds.

Due to regulatory uncertainty, however, they are still a fairly rare phenomenon: spot crypto ETFs are not authorized in the US (Grayscale is now suing the SEC for the possibility to register one), and the European Union only allows crypto ETNs (exchange-traded note).

Should Grayscale succeed in its battle with the SEC and successfully introduce a crypto ETF in the US, it could mean a lot. According to a recent investor survey by Brown Brothers Harriman, a private US investment bank, an overwhelming 74% of institutional investors have expressed keen interest in crypto ETFs, which could offer a regulated and accessible way for institutions to participate in the crypto market.

Family Offices Embrace Crypto

Cryptoassets represent a tiny part of family offices’ portfolios, but their integration is on the rise, with 26% already investing in crypto, according to a recent survey by Goldman Sachs.

This is a notable rise since 2021 when only 16% of the surveyed companies indicated crypto exposure. However, the events of the bear market may have shifted the sentiment of the hesitant part of the respondents to the negative side: 39% were “not interested” in crypto in 2021 vs 62% in 2023.

Impressive Performance of Crypto Hedge Funds

Hedge funds typically represent the higher-risk segment of investment entities, and the crypto space can provide plenty of risks. In fact, crypto hedge funds are now compared to the technological hedge funds of the early 2000s, tapping into the rich source of alpha (an excess return compared to a benchmark, e.g. S&P500 for stocks, or BTC/USD for crypto).

The report on liquid hedge funds, released by a crypto investment firm Numeus, has outlined several qualities of the crypto market, which are exploited by the hedge funds:

  • Crypto markets are still fragmented, offering possibilities for arbitrage
  • The ecosystem and the possibilities are increasingly complex, allowing to try innovative investment strategies
  • Trading is global and 24/7
  • The volatility is high
  • The derivatives market is thriving (65% of volumes in crypto are traded through derivative products, principally futures and perpetual swaps)
  • The infrastructure is constantly evolving

Despite the challenges faced in 2022, including the collapse of the $10 billion Three Arrow Capital, the hedge funds’ AUM has registered a remarkable growth of 435% since 2018, reaching $54.6 billion.

According to Numeus, this figure is poised to grow, as more talent migrates from traditional finance to crypto, resulting in a broader range of investment strategies being created and implemented.

Although the crypto space still encounters significant hurdles, cryptoassets are increasingly used to diversify a portfolio, make a bet on blockchain technology, or try to play the markets. The banking crisis has even led some investors to move from regional banks to Bitcoin. Overall, cryptoassets are still a very small part of traditional investment, but their growing acceptance in the broader financial ecosystem is a notable trend.

Written by D.Center