Hedge funds are increasingly embracing digital assets, according to a recent survey by the Alternative Investment Management Association (AIMA). The study reveals that 55% of hedge funds now hold cryptocurrencies, representing an 8% jump from the previous year. This trend reflects a growing institutional interest in the cryptocurrency market despite its inherent volatility. The survey was conducted with 122 hedge fund managers who collectively manage over $982 billion in assets. The average allocation to crypto-related assets is 7%, however, most funds remain cautious, investing less than 2% in cryptocurrencies. Notably, nearly 71% of these funds plan to increase their exposure to digital assets within the next year. A significant portion – 67% – are primarily engaging with cryptocurrency through derivatives, avoiding direct exposure. This report highlights concerns about vulnerabilities in derivatives markets, particularly regarding excessive leverage and inadequate institutional infrastructure. The evolving regulatory landscape is driving this interest in digital assets. Nearly half of the survey respondents attribute their increased engagement to changes in U.S. regulations. Recent developments include the Trump administration’s overhaul of digital asset rules and bipartisan efforts in the Senate to advance a comprehensive crypto market structure bill. The ongoing government shutdown has temporarily stalled progress, but momentum remains for legislative action. Senator Thom Tillis emphasizes that Congress must act quickly before elections potentially impede progress on this critical legislation.