The first half of 2023 saw an interesting reversal in the crypto realm with crypto hedge funds noticeably underperforming in contrast to the stellar performance of Bitcoin (BTC). While the expected aim of hedge funds was to devise strategies that would shield their investments from volatility, the narrative seems to have had an ironic twist.
Crypto hedge funds could offer only a moderate 15.2% return in the first six months, per Bloomberg. This performance rather pales when compared to the enticing 83.3% return that a straightforward holder of BTC would pocket in the same window. These statistics come courtesy of Switzerland-based investment adviser 21e6 Capital AG.
One prominent reason acknowledged for this underwhelming performance has been the defensive approach of hedge funds. Many funds decided to stay partially in cash during the industry’s tumultuous period last year, climaxing with the bankruptcy of a renowned crypto exchange, FTX, in November 2022. This action subsequently sent Bitcoin and other crypto assets plummeting to their lowest for the ongoing market cycle.
On the flip side of the turmoil, they missed the sizeable price surge that followed in the January-March period. Today’s data shows that a number of altcoins have also trailed behind Bitcoin, further tightening the grip on funds fixated on exploiting the altcoin market.
Crypto hedge funds focusing on “market neutral” strategies have been hit the hardest, yielding merely 6.8% on average during the period. These funds aim to gain regardless of the overall market direction, a vision that has clearly misfired this time around.
The hurdles aren’t just limited to pricing strategies. The crypto funds are facing a maze of complications after the closure of crypto-friendly banks such as Silvergate Capital Corp. and Signature Bank. Finding new banking partners has been a massive struggle, notes Maximilian Bruckner, head of marketing and sales at 21e6, to Bloomberg. Coupled with the current murky regulatory scenario and the frantic search for secure trading venues and custodians, the hurdles stacking up against these funds are quite formidable.
In this rapidly moving yet unpredictable crypto world, timing and risk-taking approach may have left some investors disappointed in the short term. However, this unsettling situation underscores the fact that maintaining a balanced portfolio including, but not exclusively tied to cryptocurrencies, can be a safer and more rewarding strategy in the long term.
Source: Cryptonews
