According to a report by PwC, hedge funds focused on layer-1 altcoin projects throughout 2021. Accordingly, the funds went to projects with an Ethereum alternative. Additionally, alternatives have been widely adopted by crypto hedge funds. Here are the details…
Hedge funds embrace Ethereum rival altcoin projects
PwC recently released its fourth “Annual Global Crypto Hedge Fund Report”. Accordingly, in 2021, layer-1 Ethereum competitors such as Solana, Avalanche, Terra, and Polkadot gained great acceptance among hedge funds. However, unsurprisingly, Bitcoin and Ethereum still hold the lion’s share of the crypto market. Respondents to PWC’s survey show that only 29% of all funds are in BTC. However, Bitcoin has at least half of the daily crypto trading volume. The new data is a remarkable improvement over the previous year, when BTC held 56% of funds and 50% of trading volume. This is because hedge funds devoted to alternative projects have begun to increase.
After Bitcoin, Ethereum became the largest shareholder in hedge funds. ETH was followed by Solana, Polkadot, Terra, Avalanche and Uniswap. Accordingly, 51% of the crypto funds surveyed went to Solana. Also, 48% was invested in Polkadot and another 45% in Terra. The report said:
“Hedge funds have rapidly adopted new tier-1 chains such as SOL, DOT and AVAX over the past year. This reflects the wider acceptance that Ethereum alternative altcoins have achieved in the market over the past 12 months. As is known, layer-1 alternatives provide higher scalability and lower transaction fees than Ether.
Projects like Solana and Avalanche are growing
This massive adoption of altcoin funds partly explains the outstanding performance of the new L1s. For example, SOL was trading at $1.5 at the beginning of 2021, but was at $172.5 at the end of the year. Thus, it achieved a price increase of 9,600% in one year. Similarly, the LUNA went from $0.65 at the beginning of 2021 to $84.7 by the end of the year. Additionally, Avalanche (AVAX) rose from $3.2 to $101.5.
However, it is worth noting that the price crashed to zero with the collapse of Terra’s UST and altcoin LUNA. As reported by Kriptokoin.com , Terra’s collapse had a ripple effect across the industry. It also caused many major cryptocurrencies to depreciate significantly. PwC noted that the collapse of Terra “could be a setback for the overall crypto industry in the short term.” This year, $102 million and $43 million worth of funds have flowed into Solana and Avalanche. However, the flow of capital to cryptocurrencies is expected to slow over the rest of the year.
Traditional funds pouring into crypto
The PwC report also revealed that more traditional hedge funds are entering altcoin projects. 38% of traditional funds surveyed increased their altcoin investments compared to 21% a year ago. However, most traditional hedge funds that go into digital assets don’t take much risk. According to the report, 57% of funds invest less than 1% of their total assets under management (AuM) in cryptocurrencies. On the other hand, 20% of the funds have dedicated 5% to 50% of their total assets to crypto. Also, two-thirds (67%) of funds investing in digital assets in 2021 aim to allocate more capital to cryptocurrencies by the end of 2022.
