Statistics emerging from Swiss-based crypto investment adviser, 21e6 Capital suggest that a Spartan ‘buy-and-hold’ approach to bitcoin (BTC) would have delivered 83% returns for the investors in the first half of 2023, outshining the average yield of 15% from crypto hedge funds. Investors relying on directional strategies witnessed an increased return of 22%, nonetheless, stunted when juxtaposed with bitcoin. On the contrary, the market-neutral strategies offered returns as low as 6.8%.
This discrepancy in returns becomes more staggering when considering the closure of a mammoth crypto exchange FTX in November, the shutting down of three crypto-friendly banks within the annual cycle, and the ever-growing uncertainty over potential regulations. This instigates exploration of the factors causing underperformance of professionally managed crypto funds on such a grand scale.
A closer analysis by 21e6 Capital points towards crypto hedge funds’ strategy to maintain larger cash positions for risk mitigation following the collapse of FTX. This strategy appears to backfire as it resulted in slower reaction times to the volatile crypto market. Moreover, the underperformance can also be attributed to altcoins – cryptocurrencies that are not bitcoin or ether – whose bleak performance negatively impacted the hedge funds.
Another hard-hitting revelation is the closing down of roughly 97, or 13%, of crypto hedge funds due to underperformance, as tracked by 21e6 Capital. Part of this attrition includes the closure of crypto investment firm, Galois Capital, dealing a heavy blow due to exposure to FTX. This doesn’t necessarily discredit the capability of crypto hedge funds to significantly outperform the bitcoin benchmark, as witnessed during previous bull runs. But it clearly depicts the need for adaptive and well-strategized risk management efforts.
What future does this draw for crypto hedge funds? Can they revive their golden period of high returns or will individual investment strategies, like bitcoin and ethereum, continue to overshadow their performance? Only the coming years, riddled with potential regulations and marked by the agility of the crypto market, will tell.
Source: Coindesk
