ABOUT 13 per cent of cryptocurrency hedge funds have shut down so far this year, as weak performance and difficulties in accessing banking services weighed on the industry, according to data tracked by Switzerland-based investment adviser 21e6 Capital.
Crypto funds on average generated a return of 15.2 per cent in the first half of 2023, underperforming Bitcoin, which gained 83.3 per cent over the same period, the data provided to Bloomberg News showed.
Many funds held larger-than-normal cash positions following industry turmoil in 2022, which peaked with the collapse of crypto exchange FTX. These funds missed out on Bitcoin’s surge since the start of the year, according to a report by 21e6. Meanwhile, most major altcoins – tokens that are not Bitcoin – underperformed the biggest cryptocurrency.
Maximilian Bruckner, head of marketing and sales at 21e6, said many funds are “still struggling to find new partners” for banking services after the closure of crypto-friendly institutions Silvergate Capital and Signature Bank earlier this year. That, along with regulatory uncertainty and the scramble for secure exchanges and custodians, presented a difficult set of hurdles for these funds.
The Swiss company tracks the status of more than 700 crypto funds globally, including 123 funds across 70 firms that regularly report performance data. So far this year, 97 funds, or 13 per cent, have shut down. The US is still the dominant location for crypto fund managers, Bruckner said.
Funds with market-neutral strategies performed the worst, generating only 6.8 per cent return on average from January to June. Funds that make directional bets returned 21.9 per cent on average, the data showed.
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Some funds shut down after losing assets which had been stored on platforms that collapsed. FTX, in particular, was a favourite among hedge funds and professional crypto traders.
Earlier this year, Galois Capital, a crypto investment firm known for betting against the Luna token before its implosion, closed its flagship fund after it was hit by the collapse of cryptocurrency exchange FTX.
BlockTower Capital, a Miami-based digital-asset investment firm, wound down a “market-neutral” crypto fund that at one point oversaw more than US$100 million. BLOOMBERG
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