According to a recent study by PwC, Ethereum alternatives and other Layer 1s have gained a lot of attention and widespread adoption as crypto hedge funds throughout 2021. These chains, also known as “Etherium Killers,” owe much of their success to the promise of faster transactions and lower gas rates.
Cryptographic hedge fund adopted Alts in 2021
In its 4th Global Crypto Hedge Fund Report 2022, PwC states that new Layer 1 chains such as Solana, Avalanche, Terra and Polkadot have been extensively adopted by crypto hedge funds throughout 2021. Market share.
According to the report, 29% of crypto funds surveyed by PwC say that at least half of their daily crypto trading volume is BTC. In particular, this is a significant decrease compared to the previous year, when 56% of the fund accounted for more than 50% of the daily trading volume on Bitcoin, suggesting that the fund is diversified into altcoin. doing.
Following Bitcoin and Ethereum, the top five altcoins traded by crypto funds were Solana, Polkadot, Terra, Avalanche and Uniswap, respectively. More specifically, 51% of the crypto funds surveyed traded Solana, 48% traded DOT, and an additional 45% were exposed to LUNA. The report said:
“New Layer 1 chains such as SOL, DOT and AVAX have been rapidly adopted by crypto hedge funds over the past year, due to faster trading and lower gas rate promises compared to Ethereum. , Reflects the widespread adoption that these chains have achieved in the market over the last 12 months. “
This massive adoption by crypto funds partially illustrates the extraordinary price performance of the new L1. For example, SOL was trading at $ 1.5 at the beginning of 2021, but by the end of the year it was priced at $ 172.5, an increase of over 9,600%. Similarly, LUNA surged from $ 0.65 at the beginning of 2021 to $ 84.7 by the end of the year, and AVAX surged from $ 3.2 to $ 101.5.
However, the price of LUNA has become virtually zero as the entire ecosystem has collapsed due to stablecoin UST depegging by Terra’s algorithm. The collapse of Terra has also had a spillover effect throughout the industry, resulting in the loss of significant value to many major cryptocurrencies.
PwC said Terra’s collapse “could be a recession in the general crypto industry in the short term.” So far this year, $ 102 million and $ 43 million worth of money have flowed into Solana and Avalanche, but the inflow of capital into cryptocurrencies is expected to slow for the rest of the year.
“The LUNA case clearly reminds us that many cryptocurrencies are still under development and some projects are still experimental in nature. The value of these coins could rise quickly. Yes, but it also quickly becomes irrelevant and can completely collapse in a short period of time. “
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More Traditional Hedge Funds Get Cryptocurrencies
The PwC report also revealed that more traditional hedge funds have stepped into cryptocurrencies despite tremendous volatility and market uncertainty. Of the traditional hedge funds surveyed, 38% said they invested in digital assets in 2021 (21% a year ago).
In particular, most traditional hedge funds entering digital assets are less risky. According to the report, 57% of funds invest less than 1% of their total assets under management (AuM) in digital assets.
On the other hand, 20% of the fund spends 5% to 50% of AuM on cryptocurrencies. In addition, two-thirds (67%) of funds invested in digital assets in 2021 said they are aiming to invest more capital in the asset class by the end of 2022. John Garvey, PwC’s Global Financial Services Leader, said:
“Volatility continues to exist, but the market is mature, with more crypto-focused hedge funds and higher AuM, as well as more traditional funds entering the crypto space. doing.”
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About the author
Ruholamin Haqshanas is a seasoned cryptocurrency and financial journalist with over 2 years of writing experience in this area. He has a firm grasp of different segments of the FinTech space, including decentralized finance (DeFi) in the financial system and emerging markets for non-fungible tokens (NFTs). He is an active user of digital assets for money transfers.