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Roughly one in five hedge funds were invested in digital assets earlier this year, with more managers planning to try their luck with crypto, according to a new survey.

The Alternative Investment Management Association (AIMA), PwC and Elwood Asset Management released their latest report on hedge funds and digital assets after surveying fund managers. The survey covered 39 global funds managing roughly US$180 billion in the first quarter of this year (all values below are in U.S. dollars).

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Bitcoin’s value soared last year, boosting the assets of crypto hedge funds from $2 billion to $3.8 billion. While the median return in 2020 among crypto hedge funds was 128% (compared to 30% in 2019), discretionary long-only funds performed best with a median return of 294%, the report said. Hedge funds with quantitative strategies — the most common, representing 37% of crypto funds — had a median return of 72%.

Several cryptocurrencies surged earlier this year but the past month has been especially volatile, with Bitcoin’s price down from a high above $60,000 to trade below $40,000 on Tuesday.

Bitcoin was the most common holding among crypto hedge funds (92%), followed by Ethereum
(67%), Litecoin (34%), Chainlink (30%), Polkadot (28%) and Aave (27%), the report said.

Beyond the crypto-focused funds, the survey found 21% of traditional hedge funds had some crypto exposure — an average of 3% of their total assets. The vast majority (86%) of funds that held digital assets planned to increase their exposure this year, while roughly one-quarter of funds not currently invested in digital assets said they intended to be.

The survey found regulatory uncertainty to be the greatest barrier (82%) for managers, followed by client reaction or reputational risk (77%) and digital assets falling outside the scope of investment mandates (68%).

Henri Arslanian, PwC’s crypto leader, said he expects inflows into crypto hedge funds to increase over the coming months.

“For many institutional investors, an allocation to a crypto hedge fund is the natural first step of their crypto journey as it allows them to observe and learn about the asset class via a vehicle and structure they are familiar and comfortable with,” Arslanian said in a release.

The median management fee for crypto hedge funds last year was 2%, with a 20% performance fee.