More Than Half of Traditional Hedge Funds Now Hold Crypto Assets

According to the Alternative Investment Management Association (AIMA) and PwC’s 7th Annual Global Crypto Hedge Fund Report, 55% of traditional hedge funds now have exposure to digital assets, up from 47% in 2024.

The survey included 122 hedge fund managers controlling $982 billion in assets. This represents a 17% year-over-year increase in funds holding crypto investments, marking a significant shift in how mainstream finance views digital assets.

Small Allocations but Big Plans

While more than half of hedge funds now hold crypto, most are taking a careful approach. Over half of these funds invest less than 2% of their total assets in digital assets. On average, funds allocate about 7% to crypto-related investments.

However, the future looks different. 71% of hedge funds with crypto exposure plan to increase their investments over the next 12 months. This suggests growing confidence in digital assets despite conservative current positions.

The main reasons funds invest in crypto are portfolio diversification (47%), market-neutral alpha opportunities (27%), and asymmetric return potential (13%).

How Hedge Funds Access Crypto Markets

Most traditional hedge funds prefer using derivatives to gain crypto exposure. 67% of funds invest through crypto derivatives rather than buying digital assets directly. This approach jumped from 58% in 2024.

Derivatives allow hedge funds to take positions without holding the actual cryptocurrencies. They offer leverage and sophisticated hedging strategies. However, the October 2025 flash crash exposed risks with this approach, triggering over $19 billion in liquidations.

Source: AIMA research paper

Spot crypto trading also grew significantly, rising from 25% to 40%. Other popular methods include exchange-traded products (33%), tokenized assets (27%), and crypto-related equities (27%).

US Regulations Drive Institutional Confidence

New regulations in the United States are encouraging more hedge funds to enter the crypto market. 47% of institutional investors say evolving US policies are prompting them to increase crypto allocations.

The Securities and Exchange Commission launched “Project Crypto” in July 2025 under Chairman Paul Atkins. This initiative aims to modernize securities rules for digital assets. Atkins stated that most crypto assets are not securities, reversing the previous administration’s approach.

In July 2025, President Trump signed the GENIUS Act into law. This created the first federal regulatory system for stablecoins in the United States. The law requires stablecoin issuers to hold 100% reserves in liquid assets like US dollars or short-term Treasury bills.

The Office of the Comptroller of the Currency also issued Interpretive Letter 1183, confirming that national banks can custody crypto assets and hold reserves for stablecoins. This removes previous approval requirements that created barriers for banks entering the crypto space.

Crypto-Native Funds Growing Rapidly

Pure crypto hedge funds are also experiencing significant growth. Average assets under management for crypto-focused funds reached $132 million in 2025, up from $79 million in 2024 and $41 million in 2023.

The most popular crypto assets held by these funds are Bitcoin (86%), Ethereum (80%), Solana (73%), and XRP (37%). Solana saw particularly strong growth, jumping from 45% adoption in 2024.

Most crypto hedge funds (73%) generate additional returns through yield strategies. The most common methods are custodial staking (39%) and liquid staking (35%).

Institutional Investors Getting Serious

The type of investors putting money into crypto hedge funds is changing. Fund of funds participation jumped to 39% in 2025 from 21% in 2024. Institutional allocations from pension funds, foundations, and sovereign wealth funds increased to 20%, compared with 11% the previous year.

This shift shows that crypto is moving beyond high-net-worth individuals and family offices. Larger institutional investors are entering the market, bringing higher standards for due diligence and operations.

Among all institutional investors surveyed, two-thirds currently allocate to digital assets. They cite asymmetric return potential (35%), portfolio diversification (18%), and long-term outperformance (18%) as their main reasons for investing.

Importantly, 41% of institutional investors say they would increase crypto allocations if infrastructure improved. They specifically want better custody services, trading platforms, and compliance frameworks.

What’s Holding Others Back

Not everyone is jumping into crypto. Among traditional hedge funds without crypto exposure, 50% have no plans to invest in the next three years.

The biggest barrier is investment mandate restrictions (43%). Many funds cannot invest in crypto even if they want to because their rules prohibit it. Other barriers include regulatory uncertainty (29%) and reputational concerns (14%).

If these barriers were removed, 14% would definitely invest and 43% would consider it. This suggests significant potential demand waiting for the right conditions.

The Road to Decentralized Finance

Looking forward, 43% of traditional hedge funds with crypto exposure plan to explore decentralized finance (DeFi) over the next three years. Nearly one-third believe DeFi will significantly disrupt their operations during this period.

This interest in DeFi reflects regulators increasingly recognizing hybrid blockchain models within traditional financial frameworks. As regulations evolve, the line between traditional and decentralized finance may blur.

Tokenization is also gaining attention. 52% of hedge funds express some interest in tokenized fund structures. However, 72% cite legal uncertainty and limited investor demand as barriers. About 15% expect tokenized structures to become industry standard within ten years.

Infrastructure Challenges Remain

Despite growing adoption, infrastructure gaps persist. Traditional hedge funds say legal and compliance services need the most improvement (40%). This jumped sharply from 17% in 2024.

Prime brokerage, custody, and fund administration also need development. Centralized exchanges remain the dominant trading venue, chosen for creditworthiness and liquidity.

James Delaney from AIMA noted: “This year’s survey marks a turning point, with digital assets now moving from the margins toward the mainstream of hedge fund and institutional investing.”

The Crypto Capital Shift

The combination of clearer regulations, better infrastructure, and growing investor acceptance is pushing digital assets into mainstream finance. The US government’s pro-crypto stance under the second Trump administration has accelerated this trend significantly.

With the GENIUS Act establishing stablecoin rules, the SEC’s Project Crypto providing clarity, and banks gaining permission to custody digital assets, institutional barriers are falling. The question is no longer whether institutions will adopt crypto, but how quickly they’ll scale their investments and what impact this will have on both traditional and crypto markets.