New findings suggest that 2023 has not been a smooth ride for crypto hedge funds. According to reports from 21e6 Capital AG, a renowned investment adviser headquartered in Switzerland, about 13% of crypto hedge funds closed this year. Waning performances and impediments in obtaining banking services were the main culprits behind these shutdowns.
Underwhelming Hedge Fund Returns Fail to Meet Expectations
An average return of approximately 15% was observed within crypto funds during 2023’s first half. However, this seemingly decent figure pales compared to Bitcoin’s impressive 77% gain in the same timeframe. Unfortunately, the prosperity of the popular digital currency did not rub off on these funds, resulting in their underperformance.
While there’s a narrative painting most banks as being crypto-friendly, the reality facing numerous crypto hedge funds is far from this optimism. Against 2022’s tumultuous crypto-industry, many of these funds have been compelled to maintain larger-than-average cash positions. This approach led to missed opportunities in Bitcoin’s subsequent surge.
The Unending Search for Banking Partners
Maximilian Bruckner, who spearheads marketing and sales at 21e6, shared that many funds continue to scramble for new banking partners. The unfortunate collapse of Silvergate Capital and Signature Bank – two notably crypto-friendly banks – further exacerbated the situation earlier this year.
The adversities for these funds are not solely tied to banking challenges. They have also faced the brunt of regulatory pressures and an ongoing war on crypto led by America’s SEC, which has significantly strained their operations.
The Reality of Crypto Hedge Funds in 2023
The firm reported that out of the 700 crypto hedge funds under its surveillance, 97 had folded this year. This fallout has been particularly harsh after the FTX collapse, where many of these funds had stored their assets.
The worst performers of the lot were funds employing market-neutral strategies, achieving a mere 6.8% return in the year’s first half. Although every crypto fund strategy reaped positive outcomes this year, they drastically underperformed when measured against Bitcoin. The shortfall was more prominent in funds significantly exposed to altcoins, futures, or those heavily reliant on momentum signals.
Investor confidence showed signs of mild improvement. Nevertheless, the lack of significant fund inflows and new fund launches indicates a full recovery in sentiment is yet to be seen. Crypto hedge funds’ future remains exciting and unpredictable despite this dip.
