Banks report highest historical exposure to hedge funds, and crypto is part of the equation
Prime brokerage relationships have ballooned to record levels as hedge funds pile on leverage and increasingly wade into digital assets.
Bank exposure to hedge funds has climbed to the highest level ever recorded, surpassing $28 trillion as of mid-2026.
Goldman Sachs, Morgan Stanley, and JPMorgan each serviced over 1,000 hedge funds as of 2022, according to Bank for International Settlements data. Three banks, each with more than a thousand hedge fund clients relying on them for financing, trade execution, and securities lending.
Since then, the exposure has only grown. Hedge fund gross leverage has reached near-record levels through late 2024 and into 2025, with macro and relative value strategies driving much of the increase.
As of 2025, 55% of hedge funds reported holding digital assets, up from 47% the previous year. More than half of the hedge fund industry now has some skin in the crypto game.
When banks extend record levels of financing to hedge funds, and those hedge funds are increasingly allocated to Bitcoin, Ethereum, and other digital assets, the traditional financial system becomes more exposed to crypto volatility than the balance sheets might suggest at first glance.
The collapse of Three Arrows Capital in 2022 and the subsequent contagion it caused demonstrated exactly how leveraged crypto positions at funds can ripple through the broader financial system. The difference now is that the scale of both leverage and crypto adoption among hedge funds is considerably larger.
Look at what happened with Archegos Capital Management in 2021. A single family office’s leveraged positions caused over $10B in losses across multiple banks. Credit Suisse took the worst of it, and the damage contributed to the bank’s eventual demise.
The Bank for International Settlements has been tracking these exposures precisely because they represent a growing node of systemic importance.
The 55% adoption figure for digital assets among hedge funds means crypto is no longer insulated from traditional finance’s leverage cycles. When hedge funds de-lever, crypto tends to be among the first assets liquidated, as it is liquid, trades around the clock, and doesn’t require board approval to dump.