3rd Annual Global
Crypto Hedge Fund
Report 2021

Contents
Introduction

2

Key takeaways

3

Crypto hedge funds

5

Survey data

6

Investment data

7

Strategy insights

8

Market analysis

10

Assets under management

11

Fund performance

12

Fees

14

Cryptocurrencies

16

Derivatives and leverage

18

Decentralised exchanges

21

Predictions

22

Non-investment data

23

Team expertise24

Custody and counterparty risk

26

Governance28

Valuation and fund administration

29

Liquidity and lock-ups

30

Legal and regulatory

32

Tax

33

List of crypto hedge fund survey respondents

35

Traditional hedge funds

37

Hedge funds who are investing in digital assets

40

Hedge funds who do not currently invest in digital assets

44

Introduction
This report provides an overview of the global
crypto hedge fund landscape and offer insights
into both quantitative elements (such as liquidity
terms, trading of cryptocurrencies, andperformance) and qualitative aspects, such as bestpractice with respect to custody and governance.
By sharing these insights with the broader crypto
industry, PwC’s goal is to encourage the adoptionof sound practices by market participants as theecosystem matures.
For this 3rd annual edition, PwC have partneredwith the Alternative Investment Management
Association (AIMA) to also survey some of the
non-crypto focused hedge funds (referred to as‘traditional’ hedge funds in this report). The data on
these traditional hedge funds is provided in thesecond part of this report.

3rd Annual Global Crypto Hedge Fund Report 2021

2

Key takeaways
Crypto Hedge Funds

1

Size of the market and AuM

We estimate that the total assets under management (AuM) of
crypto hedge funds globally increased to nearly US$3.8 billion
in 2020 from US$2 billion the previous year.
The percentage of crypto hedge funds with AuM over US$20
million increased in 2020 from 35% to 46%.
The average AuM for this year’s surveyed funds increased from
US$12.8 million to US$42.8 million, while the median AuM
increased from US$3.8 million to US$15.0 million.
The median AuM at fund launch is US$1 million, indicating thatfunds have generally seen an impressive 15X increase in AuM.

2

Performance and fees

The median crypto hedge fund returned +128% in 2020 (vs+30% in 2019).
The median best performance strategy in 2020 was
discretionary long only (+294%) followed by discretionary
long-short (+129%), multi-strategy (+114%) and quant (+72%).
Median management and performance fees remained
unchanged at 2% and 20% respectively, average management
fees was also stable, at 2.3%, but average performance fees
increased from 21.1% to 22.5%.
49% of crypto hedge funds have either a hard or soft lock and
31% have either an investor level or fund level gate.

3

Investor type and average ticket size

The vast majority of investors in crypto hedge funds are either
high-net worth individuals (54%) or family offices (30%).
The median ticket size is US$0.4 million, while the average
ticket size is US$1.1 million.
Over half of crypto hedge funds have average ticket sizes of
US$0.5 million and below.

Crypto hedge funds have a median of 23 separate investors.

3rd Annual Global Crypto Hedge Fund Report 2021

3

4Fund strategies, activities and trading

The most common crypto hedge fund strategy is quantitative (37% of funds),
followed by discretionary long/short (28%), discretionary long-only (20%), andmulti-strategy (11%).
Most crypto hedge funds trade Bitcoin ‘BTC’ (92%) followed by Ethereum ‘ETH’(67%), Litecoin ‘LTC’ (34%), Chainlink ‘LINK’ (30%), Polkadot ‘DOT’ (28%) andAave ‘AAVE’ (27%).
About half of crypto hedge funds trade derivatives (56%), but short-selling has
drastically reduced, from 48% to 28% in 2020. Crypto hedge funds are also
involved in cryptocurrency staking (42%), lending (33%) and borrowing (24%).

5

Governance

The percentage of crypto hedge funds using an independent custodian
decreased in 2020 from 81% to 76%.
The percentage with at least one independent director on their board decreased
from 43% to 38% in 2020.
The percentage of crypto hedge funds using third party research increased from
38% to 47% in 2020.
88% were using an independent fund administrator in 2020, up from 86% in 2019.

6

LocationFunds tend to be domiciled in the same jurisdictions as traditional hedge funds,
with the top three being the Cayman Islands (34%), the United States (33%)
and Gibraltar (9%).
The most common location for crypto hedge fund managers is the United States(43%), followed by the United Kingdom (19%) and Hong Kong (11%).

7

Non-crypto focused (traditional hedge funds)

Around a fifth of hedge funds are investing in digital assets (21%); the average
percentage of their total hedge fund AuM invested in digital assets is 3%. Morethan 85% of those hedge funds intend to deploy more capital into the asset
class by the end of 2021.
Around a quarter of hedge fund managers who are not yet investing in digitalassets confirmed that they are in late-stage planning to invest or looking toinvest (26%).
In terms of the main obstacles to investing, regulatory uncertainty is by far thegreatest barrier (82%). Even those who do invest in digital assets cite it as amajor challenge (50%). Client reaction/reputational risk is high (77%) as well as
digital assets being outside the scope of current investment mandates (68%).
Over half of the respondents said that they don’t have enough knowledge ofdigital assets (64%).
64% of respondents said that if the main barriers were to be removed theywould definitely start/accelerate their involvement/investment or potentiallychange their approach and become more involved.
3rd Annual Global Crypto Hedge Fund Report 2021

4

Crypto hedge funds
This chapter comes from research that was
conducted in Q1 2021 across the largest global
crypto hedge funds by assets undermanagement (AuM). This section specificallyfocuses on crypto hedge funds and excludes
data from crypto index/tracking/passive funds
and crypto venture capital funds.

3rd Annual Global Crypto Hedge Fund Report 2021

5

Survey data and Methodology
This report shares the results of surveybased research conducted in Q1 2021 by
Elwood Asset Management, combined withqualitative inputs on sound practices
observed within the crypto hedge fund spacefrom PwC’s crypto team. The report focuseson actively managed crypto hedge funds
which invest/trade in liquid, public
cryptocurrencies and other instruments.

This report excludes:• Crypto index funds (including
passive/tracker funds); and• Crypto venture capital funds (which makeequity type investments).
The report excludes exchange-traded funds‘ETFs’ and access products.
Given the focus of the report, there werecertain participants in the survey whose data
we needed to exclude from the final results,
as our research showed they were notactively managed crypto hedge funds as
described above.
While most crypto hedge funds provided
responses to all the survey questions

3rd Annual Global Crypto Hedge Fund Report 2021

some were not in a position to provide
information on certain topics/questions.

However, all data analysed in this report isbased on information provided by a majorityof the funds that Elwood surveyed.
There is an inherent element of survivorshipbias in the fund universe surveyed, as thereport only includes crypto hedge funds thatwere in operation in Q1 2021. Funds thatwere forced to shut down prior to this date
due to the difficult market conditions of 2019and early 2020 have been excluded. The
data provided in this report, including
performance data, has also not been verified
by an independent fund administrator orother third party, but was provided by thecrypto hedge fund managers directly.
Finally, all participants were asked to giveconsent to Elwood Asset Management and
PwC for their name to be shared in the report.
Some firms requested that their name not beshared. Those which have given theirconsent are listed in alphabetical order in the
appendix. However, individual firms have notbeen linked to any specific comment or data
point.

6

Investment data

3rd Annual Global Crypto Hedge Fund Report 2021

7

Strategy insights
Our research this year shows that there are between 150 and 200 active crypto hedge funds
currently. Our survey results suggest that four in every five of these were launched between
2017 and 2020 (81%).

Launch of new crypto hedge funds appears correlated to the price of Bitcoin
BTC Price30%$70,000

25%$60,000$50,000

20%$40,000
15%$30,000
10%

BTC price

Frequency

Fund inception$20,000

5%$10,000

0%

$0
2012

2013

2014

2015

2016

As shown by the graph above, the launch ofactively managed crypto funds is highly
correlated with the price of Bitcoin (BTC).
The price spike in 2018 appears to havebeen a catalyst for further crypto funds tolaunch, while the decrease in 2018 led to
fewer funds being launched in 2019. 18% of
the survey respondents were launched in
2020, when prices were rising again.
We have classified crypto hedge funds
according to four broad fund strategies:• Discretionary Long Only: Funds which
are long only and whose investors have alonger investment horizon. These funds
tend to invest in early stage token/coin

3rd Annual Global Crypto Hedge Fund Report 2021

2017

2018

2019

2020

projects, and they also buy and hold more
liquid cryptocurrencies. These funds tend
to have the longest lock-up periods forinvestors.
• Discretionary Long/Short: Funds which
cover a broad range of strategies
including: long/short, relative value, event
driven, technical analysis and somestrategies which are crypto specific, suchas mining. Discretionary funds often havehybrid strategies which can include
investing in early stage projects. They
tend to have a similar lock-up period to
the Discretionary long only group.

8• Quantitative: Funds taking a quantitative
approach to the market in either adirectional or a market neutral manner.
Indicative strategies include: marketmaking, arbitrage and low latency trading.
Liquidity is key for these strategies andrestricts these funds to only trading more
liquid cryptocurrencies. As a result, thesefunds typically have the shortest lock-up
periods for investors.

• Multi-strategy: Funds adopting a
combination of the above strategies. For
instance, within the limitations set in theprospectus of a particular fund, traders
may manage discretionary long/short andquantitative sub-accounts.

Most common strategies of crypto hedge funds
2020

2019

50%
40%
30%
20%

10%
0%
Quantitative

Discretionary Long /Discretionary Long
Short
Only
Fund strategy

Assuming our dataset is representative ofthe total crypto hedge fund universe, we
conclude that quantitative funds are the mostcommon among crypto hedge funds, making
up for just over a third of all currently active
crypto funds.

3rd Annual Global Crypto Hedge Fund Report 2021

Multi-strategy

The next two larger categories are
discretionary long/short (28%) anddiscretionary long only (20%), with multistrategy funds making up a much smaller
proportion, at 11%.

9

Market analysis
Looking at the market for crypto hedge funds, we identified High-net worth
individuals ‘HNWIs as the most common investor type in crypto hedge funds,
with more than half of funds mentioning them as the most common investor type.
Family offices come second (30%) and funds of funds, a distant third (4%).
Although institutions have been aggressively ploughing into cryptocurrency
markets, they are not yet prevalent investors in crypto hedge funds, with only
one fund in our sample mentioning them as their main investor type and the top
spots still dominated by HNWIs and family offices. Going forward, it is expectedthat this mix in the investor base while gradually change with the increased
levels of interest from institutional investors.
Most common investors in crypto hedge funds
2020

2019

60%
40%
20%
0%
High-net worth Family offices Fund of Funds
Asset
individuals
management

WealthManagement
Firms

Largest investor category

Number of investors in crypto hedge funds and average ticket size
Average

MedianNumber of investors

70.1

23.0

Average ticket size (US$m)

1.1

0.4

The median number of investors in funds is 23 and the average is 70.1, while
the median ticket size is US$0.4 million and the average is US$1.1 million. The
graph below shows the distribution of the average ticket size and suggests that
half of funds have tickets below US$0.5 million.
Average investor ticket size distribution of crypto hedge funds
40%
30%
20%
10%
0%
<= 0.1

0.1 - 0.5

0.5 - 1

1-2

2 -10

>= 10

Average ticket size distribution (US$m)
3rd Annual Global Crypto Hedge Fund Report 2021

10

Assets under management
Average and median AuM of crypto hedge funds
Average

Median2020 year-end AuM (US$m)

42.8

15.0

2019 year-end AuM (US$m)

12.8

3.8

AuM level at launch (US$m)

11.3

1.0

AuM (US$bn)

We estimate that the total AuM of crypto hedge funds globally
increased to over US$3.8 billion in 2020, just over US$2 billion
in the previous year. This data is based on the AuM responses
given to us by the surveyed fund managers with certain
adjustments due to some funds having not disclosed their total
AuM.
4
3
2
1
0
2018

2019
Year

2020

The graph below shows the distribution of AuM held byindividual crypto hedge funds. Although there are many smaller
funds, assets are still highly concentrated among the largest
hedge funds. Our survey showed that the top-10 largest crypto
hedge funds control 63% of total AuM.
Crypto hedge fund AuM distribution
2019 year-end AuM

2020 year-end AuM

80%
60%

40%
20%
0%
< 20

20 - 50

50 - 100 100 - 250
AuM (US$m)>= 250Also, the effect of the 2020 crypto bull market is clearly visible inthe data above, with the number of funds with smaller AuMs
being considerably lower in 2019 than in 2020, while, at theother end of the spectrum, the number of funds managing larger
amounts of assets is considerably higher in 2020.
3rd Annual Global Crypto Hedge Fund Report 2021

11

Fund performance2020 year-end crypto hedge fund performance by strategies
Average

MedianQuantitative Long / Short

+87%

+72%

Discretionary Long / Short

+202%

+129%

Discretionary Long Only

+231%

+294%

Multi-strategy

+108%

+114%

The table above shows a breakdown of the performance by investment strategy. On a
median basis, quantitative long/short funds have considerably underperformed otherstrategies (72%), while discretionary long only out on top (294%). This is not surprisingconsidering the market rally that took place in the fourth quarter of 2020.
2020 vs 2019 crypto hedge fund median performance comparison
2020

2019

Quantitative Long / Short

+72%

+17%

Discretionary Long / Short

+129%

+23%

Discretionary Long Only

+294%

+10%

Multi-strategy

+114%

+12%

Overall, the crypto hedge funds in our
sample had a median performance of 184%
last year, vastly higher than 2019 (17%) and,while different strategies have yielded
different levels of performance, neither was

3rd Annual Global Crypto Hedge Fund Report 2021

able to outperform BTC itself, which went up
305% during 2020. A similar picture can be
drawn from 2019 data, when our sample had
a median performance of 17%, against the
BTC rally of 95% in that year.

12

2020 vs 2019 crypto hedge fund median performance by strategy
350%
300%
250%
200%
150%
100%
50%
0%
Quantitative Long
/ ShortDiscretionary
Long / Short

Discretionary
Long Only2019 year-end

Our data also suggests that, while
discretionary long-only funds were not able
to capitalise on the 2019 cryptocurrency
market recovery, lagging behind otherstrategies, they performed exceptionally wellin the 2020 bull market. On the other hand,
long-short underperformed, as one would
expect bearish bets to do in a heated market.

3rd Annual Global Crypto Hedge Fund Report 2021

Multi-strategy

Bitcoin2020 year-end

Finally, it is important to note that, while thechart above does show funds
underperforming their main benchmark, weare not able to tell whether they were able tooffer higher or lower volatility in relation to
cryptocurrencies, which could make crypto
hedge funds more attractive investment
propositions, despite the lower returns.

13

Fees
Crypto hedge fund management andperformance fees
Average

MedianManagement fees (%)

2.3

2.0

Performance fees (%)

22.5

20.0

Median fees were the same as 2019: a 2%
management fee with a 20% performance fee. Averagemanagement fees remained the same (2.3%) but the
average performance fee increased (from 21.1% to22.5%). The slight increase in performance fees can be
simply attributable to the fact that fund managers wereable to command higher performance fees in a bull
market.
Going forward, we expect funds to incur higher costs,
as regulations are likely to become more stringent andinvestors demand higher institutional set-ups. However,
the growing number of funds, as we saw in 2020, is
likely to increase competitive pressures between
managers, which would eventually seek to lower theirfees in order to attract new clients, especiallyinstitutional investors. As a result, investors are likely tobenefit from increased investment options, while funds
are likely to have their profits squeezed by lower
margins and increased competition.

3rd Annual Global Crypto Hedge Fund Report 2021

14

Despite the slight increase in management fees, crypto
funds will still find it challenging to break even, unlessthey are able to attract enough investors, keeping in
mind that the median crypto hedge fund in 2020 had
US$15 million in AuM.
To illustrate this point, if the median crypto fundmanages US$15 million and charges a 2%
management fee, then they have US$300,000 in annual
revenue. This is unlikely to be sufficient to sustain abusiness operation, especially considering that themedian fund has a payroll with six employees. As aresult, some funds are exploring ways to increase theirincome in order to cover costs. For example, we haveseen quantitative long/short funds diversify theirapproach and start market making, and early-stage
focused funds take on advisory roles for new projects,
while other funds seek to raise additional capital by
selling stakes in their General Partner (GP). Somefunds remain focused on their core strategy and hope tocover costs via the performance fee. In 2020, this would
have been extremely successful, as the median fundreturned 128% and would have been able to generate
an additional US$3.8m in income, assuming the above
mentioned median AuM. While this approach looks
positive at first, the downside is that managers may be
inclined to take additional risks, especially towards
year-end if they are still under their high-water mark.

3rd Annual Global Crypto Hedge Fund Report 2021

15

Cryptocurrencies
Looking at how crypto hedge funds are using Bitcoin and other cryptocurrencies other thanfor investment purposes, we asked whether they stake, lend or borrow digital assets.
The activities listed below were highlighted by the funds.
Percentage of crypto hedge funds involved in staking, lending and borrowing
2019

2020
42.0%
41.6%

Stakes
38.0%

Lends

32.6%

24.0%
23.6%

Borrows
0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

The number of funds staking, borrowing and lending has remained stable across the board,
despite a slight drop in the percentage of funds involved in lending in 2019.

3rd Annual Global Crypto Hedge Fund Report 2021

16

Looking at daily trading activity attributed to
BTC, 56% of the funds in our survey
reported that at least half of their daily
cryptocurrency trading volume is BTC, while
15% of funds are pure Bitcoin funds andtrade only BTC.
We also asked funds to name their top
traded altcoins by daily volume (stablecoins
were excluded). We found that the top fivewere: Ethereum (ETH, 67%), Litecoin (LTC,34%), Chainlink (LINK, 30%), Polkadot (DOT,28%) and Aave (AAVE, 27%).

Among the top 15 traded altcoins, some ofthem are considerably more popular thantheir market capitalisation would suggest.
Litecoin and Chainlink are the second andthird most traded altcoins, but their market
capitalisations are far lower than Polkadot
and Cardano, which fare lower in the
trading ranks. Aave, the fifth most tradedaltcoin by hedge funds, has a market
capitalisation of US$5 billion, compared to
Cardano’s US$48 billion, which ranks one
position below it.

Cryptocurrencies traded by crypto hedge funds and their market cap

Funds trading %Market cap

Funds trading %

100%

1250
1000

75%

750

50%
500
25%

250

0%

0

Cryptocurrency

3rd Annual Global Crypto Hedge Fund Report 202117

Derivatives and leverage
Crypto hedge funds and shortingFFM permits thepermits
fund tothe
take
short
Prospectus/PPM
fundtopositionstake short positions

53%

Actively shorts crypto assets

28%

0%

10% 20% 30% 40% 50% 60%

Crypto hedge funds and derivatives

Derivatives

56%

Options

31%

Cash settled futures

29%

Physically settled futures

12%
0%

10%

20%

30%

40%

50%

60%

Derivatives can either be used as hedging or alpha-enhancing
instruments. 2020 was a very busy year in this space. Bitcoin futures
open interest saw a substantial rise, indicating increasing institutional
interest in cryptocurrencies. As a result, existing derivatives exchanges
sought to enrich their offerings, while a number of new players entered
this space, leading to a decrease in the concentration of trading volume
distribution between exchanges. Towards the end of the year, Bitcoin
futures notional trading volumes exploded and trading currently includes
billions of US dollars per day, up from hundreds of millions a year ago.
The increased number of players and liquidity is rapidly transforming
the cryptocurrency derivatives market, enabling widespread institutional
adoption, which will, in turn, allow exchanges to offer moresophisticated products, further allowing crypto hedge funds to takeadvantage of mispricing and arbitrage opportunities.

3rd Annual Global Crypto Hedge Fund Report 2021

18

Our 2020 data shows that more than half of the surveyed funds use
derivatives, with options being the most commonly used tool (31%).
However, in contrast with our previous survey, funds are taking lessshort positions, with only 28% stating they actively short
cryptocurrencies. This is consistent with the extremely bullish views inthis market, especially from Q4 2020 and into Q1 2021, when thesurvey was conducted.
Changes in risk management policy after
the March 2020 crypto market crashNo
Yes, enhanced
counterparty/
Yes, enhanced
counterparty/exchange
exchangedue
diligencedue diligence
Yes, other

Fund launched after March 2020
setaupa formalcounterparty
Yes,Yes,
set upformalcounterparty
risk
risk management
management
policy policy
0% 10% 20% 30% 40% 50% 60% 70%

In March 2020, Bitcoin crashed to US$4,904, 53% below its intra-year
peak of US$10,344 in February. The drop was particularly abrupt on theweek of 9th of March, when prices collapsed by 27% in a single day.
In light of this event, we asked the crypto hedge funds whether they put
new risk management policies in place. Most funds (61%) stated that nochanges had been made, with some funds mentioning that they alreadyhad risk management systems in place. Among the funds that did
implement new policies, the most common was establishingcounterparty or exchange due diligence so as to not be exposed toevents such as the one described above. Others implemented a formal
counterparty risk management policy and changes in management
techniques.

3rd Annual Global Crypto Hedge Fund Report 2021

19

Crypto hedge funds and leverage

Leverage is permitted in your prospectus/PPM

51%

Your fund actively utilises leverage

27%

0%

In bull markets, managers are likely tocompound their returns by increasing
leverage and taking larger exposure to theirunderlying positions. Our data shows thatabout half (51%) of funds are allowed to use
leverage and, although we are seeing a risein financial institutions offering

3rd Annual Global Crypto Hedge Fund Report 2021

10%

20%

30%

40%

50%

60%

cryptocurrency collateralised loans, several
obstacles remain in order for it to become
more widespread (e.g. high collateralrequirements, inherent risk, price volatility).
As a result, only 27% of crypto hedge funds
actively use leverage, up from 19% in 2019.

20

Decentralised exchanges
Decentralised finance (DeFi) had
extraordinary growth in 2020 and was theyear’s buzzword within the cryptocurrency
community. DeFi protocols aim to renderpeer-to-peer financial services, which allow
cryptocurrency trading, loans, interest
accounts without the use of traditional banks
and traditional financial intermediaries.

Last summer, DeFi started booming and,between April 2020 and April 2021, thetrading volume on these platforms grew
more than 90-fold, with Uniswap making up
for half of the DeFi market volume in April
2021.

Top 5 most used decentralised exchanges by crypto hedge funds
Uniswap

15.7%

1inch

7.9%

SushiSwap

4.5%

Balancer

3.4%

Curve

2.2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Our data shows that 31% of crypto hedge funds use decentralised exchanges, with Uniswap
being the most widely used (16%), followed by 1inch (8%) and SushiSwap (4%).

3rd Annual Global Crypto Hedge Fund Report 2021

21

Outlook or Fund manager predictions
This year, we gave crypto hedge fundmanagers the opportunity to provide theirviews on where the price of Bitcoin andoverall cryptocurrency market capitalisation
would be on 31 December 2021.
Our data shows that managers remainbullish on Bitcoin. At the time of the closureof our survey, the Bitcoin price was hovering

around US$59,000, and all but one
respondent predicted a value higher thanthat, with the median predicted price being
US$100,000. In fact, the majority ofpredictions were in the US$50,000 to
US$100,000 range (65%), with another 21%
predicting prices would be between
US$100,000 and US$150,000.

Distribution of Bitcoin price predictions for the end of 2021
70%

60%
50%
40%
30%
20%

10%
0%
50

50 - 100
100 - 150
150 - 200
Bitcoin price prediction (US$'000)

With regards to the total cryptocurrency
market capitalisation, by the time we closed
our survey, the crypto market was worth
approximately US$2 trillion. Fund managers
are also bullish, with over 76% of funds> 200

estimating that market capitalisation would
finish the year above current levels, with themedian predicted level at US$3 trillion, andmost forecasts falling in the US$2 trillion to
US$5 trillion range.

Distribution of cryptocurrency market cap predictions for end of 2021
70%
60%
50%
40%
30%
20%
10%
0%
1

1-2
2-5
5 - 10
Cryptocurrency market cap prediction (US$ trillion)

3rd Annual Global Crypto Hedge Fund Report 2021

1022

Non-investment data

3rd Annual Global Crypto Hedge Fund Report 2021

23

Investment Team expertise
Change in crypto hedge fund average team size and cumulative years
of investment management experience
2020
Average

2020
Median2019
Average

2019
Median2018
Average

2018
MedianTeam size

7.6

6

8.7

6

7.5

6

Cumulative
years of teaminvestment
management
experience

60

40

50.1

40

24

20

In 2020, the average size of the investment
teams marginally decreased from 8.7 to 7.6
people, while the average number for
cumulative years of investment management
experience has increased from 50 to 60.
This suggests that there is an increasing
number of experienced investment
professionals entering into this space, thus
leading to financially savvier crypto fundteams. But it is possible that there may also
be survivorship bias where crypto funds thatclosed during the previous year had a higher
proportion of junior staff. Additionally, it could
also mean that newer funds are being
established that had fewer but moreexperienced staff at the initial stage.
We expect this trend to continue where wesee experienced finance professionals enter
the crypto space as the industry evolves andmatures.

An investment team with ‘traditional’ asset
management experience will likely giveinvestors, as well as regulators, greater
confidence that the fund is being managed ina professional and compliant manner.
Experienced, non-investment professionals
are also critical for the smooth running of thefund and its operational set-up. For example,a Chief Operating Officer (COO) or Head ofCompliance with years of experience in the‘traditional’ asset management world will bewell-versed in applicable rules andregulations and the importance of investor
protection. As previously mentioned, due tothe particular nature of crypto assets, having
a Chief Technology Officer (CTO) with astrong tech background is often essential.

Cumulative years of team crypto/blockchain experience
2020
Average
Cumulative
years ofteam
crypto/blockchain
experience

2020
Median2019
Average

2019
Median

2019

16

2020
21

19

3rd Annual Global Crypto Hedge Fund Report 2021

16.0

21

14.5

0

10
20
Team size

30

24Compared to 2019, we have seen acontinued increase in the cumulative yearsof team/blockchain experience, in particular
it has grown from 16 to 21 years. We expect
this number to grow as individuals continue
to gain more experience in this niche field

and as funds increasingly seek to hire
individuals with deep crypto and blockchain
experience (e.g., researchers, consultants,
engineers). This is likely to give funds
competitive edge, a better understanding ofa fast changing and complex market.

Percentage of crypto hedge funds using third party research

Use of third party
research

2020

2019

2018

47%

38%

7%

In 2019, our data showed that 38% of thefunds surveyed used third party research.
While funds may have historically reliedheavily on proprietary valuation models, third
party research in recent years have become
more available as the industry continues to
grow.

This year, our data shows a near 10%
increase in the number of funds using thirdparty research. This may be due to a numberof factors, such as the growing universe of

3rd Annual Global Crypto Hedge Fund Report 2021

crypto assets making it challenging for inhouse teams to cover the whole market
themselves. Increased number of dedicatedcrypto research providers offering targeted
research and analysis and managers may
find it more efficient to outsource certain
parts of their due diligence process. They
can then focus their attention and energy on
specific areas of expertise where they havean edge and can generate alpha.

25

Custody and counterparty risk
Percentage of crypto hedge funds using an independent custodian% of funds using custodians by strategy% (2020)% (2019)

Quantitative Long / Short Crypto

64%

74%

Discretionary Long / Short Crypto

84%

88%

Discretionary Long Only Crypto

83%

89%

Multi Strategy

80%

88%

Quantitative Long Only Crypto

100%

n.a.

In the traditional fund management space,using an independent third-party custodian is
expected. There is a large number of
established players, from licensed
custodians to prime brokers, who can takecustody of fund assets. In crypto, this is not
as straightforward due to the complexity ofmaintaining private keys, multi-signature
wallets, hot/cold wallet set-ups or other
innovative ways to hold the private key offund's crypto assets.

Compared to the 2019 data, the use of
independent custodians has decreasedslightly. 76% of funds are now using one ormore independent custodians (either third
party or exchange custodians), down from81%.

For funds using such a self-custody
approach, having the in-house technology
and expertise to design and monitor the selfcustody set-up is also very important.
3rd Annual Global Crypto Hedge Fund Report 2021

Whilst it is difficult to determine what is
causing, we believe that it may be due to theincreased levels of comfort that many crypto
hedge funds may have towards their crypto
exchange and other counterparties. Also, it
may be due to the increased levels of usageof decentralised exchanges.

26Some of the larger hedge funds will havemore than one custodian. There are manyreasons for this. Some do it for counterparty
risk management reasons, especiallyconsidering the increased hacking risks in
the industry. Others may require a second
custodian due to their primary choice notoffering custodial services to their full asset
list. Unfortunately, onboarding a second
custodian is not always possible for smaller
funds due to the minimum monthly fees thatare added to the fund expenses, which could
significantly impact their net performance.

It is important to remember that crypto
quant funds traditionally leave theirassets directly with the various
exchanges as they trade continuously.
However, for these quant funds, having
a well-defined and enforced risk
management policy is likely to be more
important than having a custodian.
Conducting regular counterparty risk
assessments on these exchanges isalso becoming important, as
institutional investors will likely focus on
this area as part of their operational due
diligence.
Given the relevance of thesedevelopments, it is interesting to
examine the overall crypto custodylandscape. From the chart below, we
can see that there is no ‘market leader’
and that the industry is fragmented. Ourdata shows that the most frequently
named custodian serves only 15% of
the crypto hedge fund universe in ourreport. While this data weighs eachfund equally (not factoring in AuM), we
still consider it relevant as it shows how
fragmented the custodian ecosystem is.

We also note that the vast majority ofcustodians used by funds are regulated or
licensed in some form. This is a positive
development for the industry and indicatesthe further institutionalisation of the space. In
addition, a handful of custodians also have
System and Organisation Controls (SOC)
reports (or their ISAE 3402 equivalent),
which are different from financial audits.
These reports provide a level oftransparency around financial reporting(SOC 1/ISAE 3402) and operational controls(SOC 2) and help to build customer trust in
their risk management framework. We
expect to see an increase in the number ofcustodians that obtain such public assurance
reports. This should give comfort not only toinvestors in funds which use thesecustodians but also to the funds’ service
providers.
Most frequently used crypto custodiansamong crypto hedge funds
18%
16%
14%

12%
10%
8%
6%
4%
2%
0%

3rd Annual Global Crypto Hedge Fund Report 2021

27

Governance
Percentage of crypto hedge funds with independent director

Independent director on board

2020

2019

2018

38%

43%

25%

Having independent directors on a fundboard is critical, especially when difficult
decisions need to be made that will impact
investors. For example, whether a side
pocket needs to be set up to hold certain
assets or whether restrictions need to be
imposed on investor redemptions. In thecrypto space, critical decisions areexacerbated by volatility issues and illiquid
assets.
In 2021, we have seen a decline in thepercentage of crypto hedge funds with anindependent director on their board from
43% to 38%. Whilst Whilst difficult to pinpoint
why this occurred, we believe that it may be
due to the rising markets in 2020

3rd Annual Global Crypto Hedge Fund Report 2021

and the great returns being generated by crypto
hedge funds which may have made many of theinvestors more forgiving of such requirements.
As the institutionalisation of the industry continues
and the de facto requirement by institutional
investors to have independent directors on theboards of the funds, we expect this percentage toincrease. The wider availability of board directors
with relevant expertise and knowledge of thespace will also be a driver of this trend. In the earlyyears these candidates were a rare commodity.
But now, as the industry matures, there are morecandidates to choose from. This trend is likely tohave a positive impact on funds’ ability to attract
institutional investors and is another developmentthat should continue as the industry becomes more
institutionalised.

28

Valuation and fund administration
Percentage of crypto hedge funds using an independent fund administrator

Use of independent fund administrator

An independently verified Net Asset Value(NAV) is a crucial piece of information forfund auditors as well as investors, and we
expect to see more developments in thisarea. We are happy to see that over 88% of
the crypto hedge funds in our report this year
use an independent fund administrator.
It is very unlikely that institutional investors
will select any fund without an independentadministrator. While this was acceptable in
the early days of the industry, there is no
excuse for a crypto hedge fund to calculate
its own NAV each month. We expect only avery restricted number of funds, such as
those with small AuM or who hold niche
crypto assets, to be able to value part of theirportfolio themselves.
Regardless of the choice of fundadministrator, the valuation policy needs
particular focus. Most funds will have theirvaluation methodologies and frameworks set
out in the PPM. It is important for any fund toensure that it complies with what is set out inits documentation. Management fees are
determined based on NAV and performancefees are typically charged on NAV
appreciation over a set period (e.g., above a‘high-water-mark’).

3rd Annual Global Crypto Hedge Fund Report 2021

2020

2019

88%

86%

Investors expect a monthly NAV to beavailable and verified by an independent,
reputable fund administrator. Cryptocurrency
exchanges can provide independent pricequotes for certain crypto assets. But for
those portfolios made up of less liquid crypto
assets, managers may have to source avaluation from an independent third-party
which satisfies the requirements set out in
the Private Placement Memorandum (PPM).

However, being able to accurately value acrypto fund remains challenging. This isparticularly true for funds that hold illiquid
tokens or crypto investments via Simple
Agreement for Future Tokens (SAFTs).
There are also details that are important for
funds trading some of the more liquid crypto
assets, such as: the cut-off time for valuation(crypto markets operate 24 hours a day) or
how many and which price sources to use(the same crypto asset may be priced
differently at different exchanges globally).

29

Liquidity and lock-ups
The liquidity and lock-up terms of the crypto hedge fund universe arelargely similar to the previous years. Quant funds provide the mostliquid fund terms and multi-strategy funds the least. Quant funds trading
liquid exchange-listed crypto assets can provide better liquidity inrelation to investments in early-stage projects or multi-strategy funds,
where managers need to consider the various portfolio strategies andinstruments ahead of executing trades.
One surprising takeaway is that we are seeing hard locks (where an
investor is not allowed to redeem until the end of the lock-up period)and soft locks (where an investor is allowed to redeem early by paying apenalty) being used across the various fund strategies, with nearly athird of the funds (31%) having one or the other.
Although hard locks are commonly used in situations where liquidity
could be an issue, many liquid quant funds have some in place. Also, it
may be that some funds were able to negotiate fee reductions via side
letters in exchange for locking up their capital. As the industry maturesand becomes more competitive, it will be interesting to see whether new
crypto hedge fund vintages result in a change in the mix of fund terms
that we see below.

Average crypto hedge fund redemption terms by strategy (2020)
Redemption
frequency

Redemption
notice period

Lockup
period

Hard
lock

Soft
lock

Discretionary Long
/ ShortMonthly30

1 year30%

21%Discretionary Long
Only

Monthly30

1 year32%

20%

Multi-strategy

Monthly30

1 year22%

17%

Quantitative

Monthly30

1 year20%

40%

Strategy

We have not analysed fund liquidity overall, as each strategy is different
and has its own liquidity constraints, however we have done an analysis
of gates.
Gates are a useful mechanism that allow fund directors to put in place
restrictions in very limited circumstances, which limit the speed at whichinvestors can redeem. The main purpose of a gate is not to protect thefund manager, but rather the remaining shareholders in the fund, so as
to ensure that assets do not need to be liquidated in a fire sale solely tomeet the large number of redemption requests.
3rd Annual Global Crypto Hedge Fund Report 2021

30

There are two main types of gates:• Fund-level gates‐ Triggered only when redemptions are over a certain threshold of the fund(e.g. when over 25% of fund NAV or of total number of shares in issue ata particular redemption day).
‐ All investors generally receive their redemptions on a pro-rata basis
depending on the number of investors redeeming, but the total redemption
amount is capped (e.g. at 25% of the NAV or total number of shares).
‐ As there is no priority, the scaled-down redemption request will be treatedon the next redemption day on a pro-rata basis with any new redemption
requests.

• Investor-level gates‐ Always applied when an investor chooses to redeem (e.g. investors canonly redeem 25% of their investment each redemption day regardless ofwhether other investors are redeeming at the same time).
Our data shows that the majority of crypto hedge funds have some sort of gate
mechanism in place. Whether the industry will move towards investor level orfund level gates over the coming years is still unclear.
Fund-level gates may be seen as fairer, as they can only be triggered if acertain threshold of redemption requests on a particular redemption day iscrossed. For example, if there is only one investor redeeming, with limited
impact on the fund, then there is no reason for a gate to be imposed in the firstplace. The downside for an investor is that they do not know whether theirredemption request will be fulfilled, which may cause some cash management
issues if the investor has their own liquidity requirements. Fund-level gates also
put more pressure on the fund’s board of directors, as they are responsible for
deciding when to enact the gates.
Investor-level gates can be seen as somewhat favouring the fund manager atfirst glance, as the investor will never be able to redeem his capital in one go,
but rather over a set number of months, during which time the fund manager willcontinue to collect fees. However, many investors prefer investor-level gates.
Although they cannot redeem their full investment in one go, they know exactly
what amount they will receive, which helps their cash flow management.
Generally speaking, investors are now comfortable with both gate mechanisms.
In practice, the final decision as to which one to put in place is often made after
consulting with the lead or Day 1 investor on their preference.
We will continue to track this data over the coming years.
Percentage of crypto hedge funds with redemption gates
31%
28%
21%
3rd Annual Global Crypto Hedge Fund Report 2021

Gates

Investor level gates
Fund level gates
31Legal and regulatory
Top Crypto Hedge Fund Domiciles

Top Crypto Hedge Manager Location

Cayman Islands

34%

United States

43%

United States

33%

United Kingdom

19%

Gibraltar

9%

Hong Kong

11%

British Virgin Islands

8%

Cayman Islands

8%

Luxembourg

3%

Switzerland

7%

Liechtenstein, Netherlands,
Singapore, Isle of Man andAustralia<5%

Spain, Gibraltar , Singapore,
Isle of Man, Malta, Canada andAustralia<5%Compared to the previous year, the Cayman
Islands and the United States havemaintained their position as the top-two
places where crypto hedge funds are
domiciled. With that being said, their market
share has declined overall, from (Cayman
Islands - 42% to 34%) and (United States 38% to 33%). We have also seen Gibraltar
overtaking the BVI and Luxembourg pushingdown Liechtenstein with the others.
Our data last year showed that the Cayman
Islands was the second jurisdiction in termsof number of crypto hedge fund managers
after the United States. However, we believethat this data was misleading: despite theinvestment management entity being basedin the

3rd Annual Global Crypto Hedge Fund Report 2021

Cayman Islands, very few of the managers
were physically based there.
For this reason, we look to where theinvestment team is physically located. Using
this new approach, our data shows that two
thirds of crypto hedge fund managers arelocated in the United States and the United
Kingdom - two existing financial centers witha large number of traditional hedge fundmanagers. A significant number of fundmanagers are also located in Hong Kong
Gibraltar and Switzerland.
We would expect this to remain mostly
constant unless we see particulargovernments or authorities implement comeup with policies to try and attract such fundmanagers to their jurisdictions.

32

Tax
A crypto hedge fund and its manager willneed to consider many of the same tax
issues that need to be considered whenstructuring, establishing and operating a
traditional hedge fund and fund manager.
These include but are not limited to:• Choice of fund vehicle and ensuring thatthe fund is set up to be attractive toinvestors with different tax attributes;‐ If the hedge fund will have non-US and
US investors, depending on investor
mix, the relevant structuringconsiderations may span a wider
spectrum. For instance, considering
the use of a flow-through entity versus
a blocked structure to mitigate double
taxation and to preserve tax attributesof the character of income derived byentity, unrelated business taxable
income considerations for tax-exempt
investors, and effectively connected
income considerations for non-US
investors where applicable.

• Operating issues with respect tocontributions, taxable income allocations,distributions, transfers, and redemptions;• Managing fund and investor tax reporting
as well as CRS/FATCA and otherreporting;

3rd Annual Global Crypto Hedge Fund Report 2021

• Consider tax reporting issues based on
the nature of underlying activities of thehedge fund, including the application ofpassive activity rules, deductibility of
expenses, collateral issues specific tovarious types of investors, wash salerules, straddle rules, short sale rules,
bond discount and premium
amortisation, foreign currencytransaction rules, among others. In
addition, US investors may facevarious tax issues in the offshore fundcontext including the passive foreign
investment company and controlledforeign corporation rules which aredesigned to prevents avoidance of
current tax on income and character
conversion.

• Understanding the capital gains andwithholding tax implications of different
trades (if any);• Choice of entity of the fund manager andstructuring the performance fees or othercompensation structure used toincentivise key staff of the manager;• Dealing with transfer pricing between any
connected entities responsible formanaging the fund.

33

However, there are a number of areas where
crypto funds have tax issues that are unique.
These include:• Different and unique sources ofincome/gains - crypto hedge funds canhave a variety of sources of income that
may require special considerations from a
tax perspective (e.g., staking income,mining income, token rewards, coinlending, hard fork, chain split, andairdrops). The taxation of the types ofcrypto and the such income/gains derived
will often be jurisdiction-specific and, inmany jurisdictions, the tax treatment is not
yet clear. The tax characterisation of
crypto held by hedge funds may evolvefrom initial acquisition throughout theholding period until disposal as certain
events occur.

Hong Kong's unified fund exemption andSingapore's fund exemption include listsof qualifying investments. Many crypto
assets (particularly payment tokens andutility tokens) may not qualify asqualifying investments.
• Because of these uncertainties, extra careis needed, and there may be more
uncertainty in many of the tax positions
that crypto funds take on. As the market
develops and becomes more institutional,
managers should expect an increased
focus on this topic from investors.

• Fund tax safe-harbours - if the fund isestablished in a different jurisdiction to theinvestment team, then detailed
consideration will need to be given as towhether the activities of the investment
team could result in tax obligations arising
for the fund. Many jurisdictions have safe
harbours in place to prevent funds from
suffering tax in the location of theinvestment team as a means ofencouraging the development of theirlocal investment management industries.
In many cases, these exemptions were
written into law prior to the advent ofdigital assets and therefore there issignificant uncertainty as to whether manysafe-harbor regimes or fund exemptions
can be relied upon for crypto funds. For
example, regimes such as the UK's
investment manager exemption,

3rd Annual Global Crypto Hedge Fund Report 2021

34

List of crypto
hedge fundrespondents

List of crypto hedge fundrespondents (in alphabetical order)
168 Trading Limited

Fasanara Capital

ODIN88 Asset Management

Algo Capital PCC Limited

Ferst Capital Partners

Off the Chain Capital, LLC

Alpha Sigma Capital

Galois Capital Management LLC

Panxora Management Corp

Alphabeth Capital Group

German Deep Tech Quantum
GmbH

Pirata Capital Management

Altana Wealth

Hartmann Capital

Plutus21 Capital

Apollo Capital

Hazoor Partners

PostModern Portfolio Advisors

ARK36

Hilbert Capital

ProChain Capital

Astronaut Capital

Hunting Hill Global Capital, LLC

PROTEIN CAPITAL FUND SLP

BKCoin Capital

Huobi Digital Asset Fund Limited

Proxima Investments

Block Asset Management

Hyperion Decimus, LLC

Pythagoras Management
Company

Blockchain Assets Pty Ltd

Immutable Insight

Quantia Capital

Blockforce Capital

JKL Capital

Red Building Capital

BlockTower Capital

L1 Digital

Rivemont Investments

BLP Asset Management

KR1 plc

SeQuant CapitalBlue Block Group

Lavaliere Capital Management

Sigil Limited

Cambrian Asset Management, Inc. LedgerPrime LLC

Silver 8 Capital, LLC

CMCC Global

Liquibit Capital

Smart Arbitrage Technologies

Coincident Capital

M31 Capital

Solidum Capital

CryptAM Capital Limited

M33 Capital

Crypto Consulting AG

Maicapital Ltd

Crypto Fund AG

Strix Leviathan

Synchronicity

DARMA Capital

Maximalist Capital

Typhon Capital Management

DCAP Capital Limited

S2F Capital

Uphold Asset Management Ltd

DunamisMutual Coin Fund

Vellum Capital

Etherbridge

NAOS Blockchain

Walden Bridge Capital

ExoAlpha

Napoleon AM

Exosphere Capital Ltd

Nickel Digital Asset Management

3rd Annual Global Crypto Hedge Fund Report 2021

St. Gotthard Fund Management
AG
Swiss-Asia Financial Services Pte
Ltd36

Traditional hedge funds
This year, the Alternative Investment
Management Association (AIMA) was invited topartner on this initiative and provide insights
into the rising interest in the digital assets
industry from the perspective of non-crypto
focused hedge funds (referred to as ‘Traditional’
hedge funds in this report). AIMA’s chapter
within this report looks at whether “traditional”
hedge funds have investments in digital assets,
their views on the growing asset class and what
they believe would be the catalysts for them toinvest initially and more significantly in digitalassets.

3rd Annual Global Crypto Hedge Fund Report 2021

37

Introduction
This chapter forms part of the ongoing series of annual crypto reports
conducted by PwC and Elwood Asset Management which commenced in
2019. This year, the Alternative Investment Management Association(AIMA)1 was invited to partner on this initiative and provide insights into
the rising interest in the digital assets industry. This chapter looks atwhether “traditional” hedge funds have investments in digital assets, theirviews on the growing asset class and what they believe would be thecatalysts for them to invest initially and more significantly in digital assets.

The data contained in this chapter comes from a survey that was
conducted in the first quarter of 2021 with 39 hedge funds that accounted
for an estimated US$180 billion in Assets Under Management (AuM). Morethan 60% of the responses were from hedge funds who manage assets ofat least US$1 billion.
1 AIMA’s work in digital assets is overseen by its global Digital Assets Working Group (‘AIMA DAWG’).

This Group is a senior-level industry steering committee tasked with driving AIMA’s regulatory
engagement, thought-leadership initiatives and operational guidance in the growing area of digitalassets. It encourages thought-leadership across the industry and shares innovations with market
participants and regulators to create a feedback loop that encourages the institutionalisation of digitalassets.

3rd Annual Global Crypto Hedge Fund Report 2021

38

Breakdown of participants: What is your total hedge fund AuM?
5.1%

10.3%

7.7%

17.9%

17.9%

38.5%

61.5%

10.3%
30.8%

Less than $100mm$500mm-$1bn$5-$10bn$20bn+

Less than $1bn

$100-$500mm$1-$5bn$10-$20bn

Greater than $1bn

Breakdown of participants: Strategy breakdown
50%

46.2%

45%
40%
35%
30%

25%
17.9%

20%

12.8%

15%
10% 7.7%

5%

17.9%

5.1%

2.6%2.6%2.6%

5.1%

7.7%7.7%

5.1%

7.7%

5.1%

7.7%

2.6%

2.6%2.6%

0%

3rd Annual Global Crypto Hedge Fund Report 2021

39

Hedge funds who areinvesting in digital assets
The survey highlights that around a fifth of survey hedge funds are
currently investing in digital assets (21%). Of those hedge funds who
invest in digital assets, the average percentage of their total hedge fund
AuM invested is 3%
Hedge funds active in digital assets that have 10-20% of their portfolio
invested accounted for 14% of respondents. It is possible that somehedge fund managers who initially may have invested a smaller
percentage of their total AuM, e.g. 1-2%, earlier on in the current crypto
cycle have seen that portion of their AuM grew exponentially in the past
year.

Breakdown of participants: Are you currently investing indigital assets?
21%

79%
Yes

No

What percentage of hedge fund AuM is invested in digital assets
14.2%

42.9%

42.9%
<1%

1-2%

10-20%

Average percentage of hedge fund AuM is invested in digital assets is 3%
3rd Annual Global Crypto Hedge Fund Report 2021

40

86% of hedge funds who are currently investing in digital assets intend to
deploy more capital into the asset class by the end of 2021 with theremainder (14%) planning to maintain the same level of capital.
By the end of 2021 do you intend to, with respect to digital assets
86%

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

14%

Deploy more capital

Maintain same levels of capital
deployed

When asked what investment strategies (fundamental, trading, arbitrage,
venture, pre/post ICO, passive, other) best describe hedge funds
exposure to digital assets, the majority responded with fundamental2(57%) and trading (57%). Those currently adopting a passive approach
to investing in digital assets included 29% of respondents, with thesame number stating they are using arbitrage.

What investment strategies best describe your digital assets exposure
60%

57%

57%

50%
40%
30%

29%

29%

Passive

Arbitrage

20%
10%
0%
Fundamental

3rd Annual Global Crypto Hedge Fund Report 2021

Trading41

Why invest in digital assets?

The most common primary reason given by hedge fund managers for including digital assets
in their portfolio is ‘general diversification’ – as per 57% of the population that responded. Of
the remainder, just under one third of respondents (29%) stated ‘exposure to a new valuecreation ecosystem’ as the primary reason to invest while 14% suggested that it made for agood inflation hedge.
In terms of exposure, two thirds of the hedge funds who responded have invested in digitalassets through derivatives trading (futures/options). While respondents also confirmed thatthey invest in digital assets, using traditional value strategies – direct/spot (33%) – or passive
funds/trusts/etps (33%).

What is the primary reason for including digital assets in your portfolio

28.6%

57.1%
14.3%

General diversification

Inflation hedge

Exposure to a new value-creation ecosystem

How are you invested (all that apply)
70%

67%

60%
50%
40%

33%

33%

Spot/direct

Passive funds/trusts/etps

30%
20%

10%
0%
Futures/options

3rd Annual Global Crypto Hedge Fund Report 2021

42

Main challenges for hedge funds investing in digital assets
The top three challenges cited by hedge fund managers who currently invest in digitalassets are: (i) client reaction/reputational risk (67%), (ii) regulatory uncertainty (50%),and (iii) current service provider availability/lack of infrastructure (33%).

Custody and safekeeping is seen as the market infrastructure area being the most in
need of essential improvements for digital adoption (83%).
What are your main challenges when it comes to investing in digital assets(all that apply)
70%

67%

60%
50%
50%
40%

33%

30%
17%

20%

17%

10%
0%
Clientreaction/reputationalrisk

Regulatory
uncertainty

Current service
provideravailability/lack ofinfrastructure

Lack of deep and Volatility of the asset
liquid traditional
pricessynthetic/indirect
products (e.g., ETFs,
futures/options)

Where do you see the biggest need for market infrastructure improvements
17%

83%

Custody and safekeeping

3rd Annual Global Crypto Hedge Fund Report 2021

Finance and collateral management

43Hedge funds who do notcurrently invest in digital assets

Around 80% of hedge fund managers who responded to the survey are not currently
investing in digital assets. Of those who do not invest in digital assets, 58% of responses
were from larger hedge funds (which we describe as any hedge fund which has US$1 billion
or greater in assets under management).
Around a quarter of hedge fund managers who are not yet investing in digital assets
confirmed that they are in late-stage planning to invest (9%) or looking to invest (17%), while
just under two thirds are unlikely to invest in the next three years (57%). 17% of hedge funds
said that they are curious about digital assets but waiting for further maturity with the large
majority of those respondents holding at least US$1 billion in AuM (75%).

Breakdown of those who do invest in digital assets
75%

80%
70%
60%
50%
40%
30%

25%

20%

10%
0%
Less than $1bn

Greater than $1bn

Breakdown of those who do not invest in digital assets
70%
58%

60%
50%

42%

40%
30%

20%
10%
0%
Less than $1bn

3rd Annual Global Crypto Hedge Fund Report 2021

Greater than $1bn

44What is your current plan with respect to gaining digital asset exposure
9%

17%

57%

17%

Late-stage planning, will be investing in the course of 2021
Looking to invest but still researching the space
Curious about digital assets but waiting for further maturity
Unlikely to invest in the next three years

What is your current plan with respect to gaining digital asset exposure(size breakdown)
80%

75%

70%
60%

54%
50% 50%50% 50%

50%

46%

40%
30%

25%

20%
10%
0%
Late-stage planning, Looking to invest but Curious about digital
will be investing in the still researching the assets but waiting forcourse of 2021
space
further maturity
Less than $1bn

3rd Annual Global Crypto Hedge Fund Report 2021

Unlikely to invest in
the next three years

Greater than $1bn

45

Reasons for why hedge funds are not investing in digital assets

The four main reasons cited by hedge fund managers when looking at investing in digitalassets are:• Regulatory uncertainty,• Client reaction/reputational risk,• Lack of infrastructure/service provider availability, and• Outside the scope of current investment mandate.
Around two thirds of respondents said that if the main barriers were to be removed theywould either actively accelerate involvement/investment in digital assets (18%), or potentiallychange their approach and become more involved (46%). While 32% of respondents statedthat the removal of barriers would still probably not impact their current approach given
investing in digital assets remains outside their mandate.

What are the main obstacles to investing
90%

80%

81.8%

77.3%

71.4%

70%
60%

68.2%

68.2%

63.6%
52.4%

52.4%

50%
40%

35.0%

33.3%

30%
20%
10%

0%

3rd Annual Global Crypto Hedge Fund Report 2021

46

If the main obstacles to investing were to be removed would you

18.2%

31.8%

4.5%
45.5%

Definitely start or accelerate involvement/investment
Potentially change approach and become more involved
Probably not change approach to digital assets and remain skeptical
Probably not change approach as obstacles not relevant (not our space)

3rd Annual Global Crypto Hedge Fund Report 2021

47

About PwC
At PwC, our purpose is to build trust in society and solve important
problems. We are a network of firms in 158 countries with more than
250,000 people who are committed to delivering quality in assurance,
advisory and tax services.
The PwC Global Crypto team is composed of over 200 professionals active
in over 25 countries that offer a “one stop shop” solutions for our crypto
clients across our multiple lines of service. Our clients range from crypto
exchanges, crypto funds, custodians and token issuers to traditional
financial institutions moving into the crypto space, as well as national
regulators and central banks with regards to their crypto policies.
Henri Arslanian (Crypto Leader)
PwC Hong Kong SAR
henri.arslanian@hk.pwc.com

Peter Brewin
PwC Hong Kong SAR
p.brewin@hk.pwc.com

Oscar Fung
PwC Hong Kong SAR
oscar.sk.fung@hk.pwc.com

Galen Law-Kun
PwC Hong Kong SAR
galen.s.law-kun@hk.pwc.com

Luke Walsh
PwC Gibraltar
luke.walsh@pwc.com

Mazhar Wani
PwC United States
mazhar.wani@pwc.com

Haydn Jones
PwC United Kingdom
haydn.jones@pwc.com

Thomas Campione
PwC Luxembourg
thomas.campione@pwc.com

Guenther Dobrauz-Saldapenna
PwC Switzerland
guenther.dobrauz@pwc.ch

Adrian Keller
PwC Switzerland
adrian.keller@pwc.ch

Pauline Adam-Kalfon
PwC France
pauline.adam-kalfon@pwc.com

Marco Monaco
PwC Italy
marco.monaco@pwc.com

Chikako Suzuki
PwC Japan
chikako.suzuki@pwc.com

Olwyn Alexander
PwC Irelandolwyn.m.alexander@ie.pwc.com

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48

About Elwood
Elwood is an investment and technology firm established in 2018
which specialises in digital assets. The team at Elwood combines
an institutional heritage in finance with a deep knowledge ofblockchain technology to create breakthrough products for global
investors.
In December 2018 Elwood launched its first product, the Elwood
Blockchain Global Equity Index, which offers investors exposure
to the growth in the blockchain ecosystem via a highly liquid andregulated vehicle. Find out more at www.elwoodam.com
James Stickland
Chief Executive Officer
james.stickland@elwoodam.com

Alexandre Schmidt
Investment Analyst
alexandre.schmidt@elwoodam.com

3rd Annual Global Crypto Hedge Fund Report 2021

49About AIMA
The Alternative Investment Management Association (AIMA) is the global representative of
the alternative investment industry, with around 2,000 corporate members in over 60
countries. AIMA’s fund manager members collectively manage more than $2 trillion in hedge
fund and private credit assets.
AIMA draws upon the expertise and diversity of its membership to provide leadership inindustry initiatives such as advocacy, policy and regulatory engagement, educational
programmes and sound practice guides. AIMA works to raise media and public awareness ofthe value of the industry. AIMA set up the Alternative Credit Council (ACC) to help firms
focused in the private credit and direct lending space. The ACC currently represents over
200 members that manage $450bn of private credit assets globally.

AIMA is committed to developing skills and education standards and is a co-founder of theChartered Alternative Investment Analyst designation (CAIA) – the first and only specialised
educational standard for alternative investment specialists. AIMA is governed by its Council(Board of Directors). For further information, please visit www.aima.org
Tom Kehoe
Managing Director,
Global Head of Researchand Communications
tkehoe@aima.org

James Delaney
Director, Government
and Regulatory Affairs
jdelaney@aima.org

Michelle Noyes
Managing Director,
Head of Americas
mnoyes@aima.org

Members of AIMA Digital Assets Working Group2 (DAWG) who helped contribute to
the report:
John D’Agostino
Dagger LLC

Kristin Boggiano
CrossTower

Thomas Ertl
PwC Luxembourg

Matthew Edwards
Dalpha Capital Management

2 This Working Group is a senior-level industry steering group tasked with driving AIMA’s regulatory engagement, thought-

leadership initiatives, and operational guidance in the growing area of digital assets.

3rd Annual Global Crypto Hedge Fund Report 2021

50

This content is for general information purposes only, and should not be used as a substitute for consultation
with professional advisors.

© 2021 PricewaterhouseCoopers Limited. All rights reserved. PwC refers to the PwC network and/or one ormore of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure forfurther details. PMS-002631