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Report: Average crypto hedge fund returns up threefold in 2020, 31% using DEX

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Forty-seven percent of traditional hedge fund managers have invested in or are considering investing in cryptocurrencies

Crypto hedge funds managed nearly $3.8 billion in assets in 2020, up from $2 billion in 2019, according to a new report from PwC and the Alternative Investment Management Association (AIMA). And crypto hedge funds are showing interest in Decentralized Finance (DEFI).

According to the third annual Global Crypto Hedge Fund Report by Elwood Asset Management, 31% of crypto hedge funds use a decentralized trading platform (DEX), with Uniswap being the most widely used (16%), This was followed by 1inch (8%) and Sushiswap (4%).

The Defi space has exploded in recent months, with the total value of the Etherium-based Defi platform now totaling $60 billion, according to Defi Pulse. Some large traditional hedge funds, such as Steven Cohen's Point72, are reportedly interested in Defi as part of a strategy to set up a crypto fund.

Henri Arslanian, head of PwC's crypto practice, said in an email that Defi has also seen increased interest from some of the more traditional financial institutions.

"While they are still a long way from using decentralized applications, many financial institutions are working to raise education levels in an attempt to understand the potential impact that DEFI could have on the future of financial services," Arslanian wrote.

The average crypto hedge fund returned 128% in 2020 (up from 30% in 2019). The vast majority of investors in these funds are either high net worth individuals (54%) or family offices (30%). In 2020, the proportion of crypto hedge funds with more than $20 million in assets under management rose from 35% to 46%.

Meanwhile, 47% of traditional hedge fund managers ($180 billion in assets under management) have invested in or are considering investing in cryptocurrencies, according to the report.

"The fact that we partnered with AIMA and included traditional hedge funds in this year's report shows that cryptocurrencies are rapidly becoming mainstream among institutional investors," Arslanian said. "That would have been unthinkable 12 months ago."