Crypto Hedge Funds Grapple with Shutdowns and Lackluster Returns in 2023

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Fredrik Vold

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Fredrik Vold

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August 7, 2023

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Crypto hedge funds have on average underperformed Bitcoin (BTC) by a significant margin in the first half of 2023, while about 13% of funds have shut down so far this year.

On average, crypto hedge funds generated a 15.2% return in the first six months of this year, well below the 83.3% that an investor would earn by simply holding spot BTC over the same period, Bloomberg reported this weekend.

The report cited data from Switzerland-based investment adviser 21e6 Capital AG.

Hedge funds sitting in cash

According to Bloomberg, the underperformance by crypto hedge funds – funds that typically hold a variety of both small and large-cap digital tokens in their portfolio – was due to many funds sitting partly in cash after the turmoil in the industry last year.

That turmoil reached its peak in November last year when major crypto exchange FTX went bankrupt, sending Bitcoin and other crypto assets to their lowest point in the current market cycle.

Following the turbulence, many funds missed out on the price gains that have taken place in the first six months of this year, in particular between January and March.

At the same time, it is no secret that many altcoins have underperformed Bitcoin this year, making the situation even worse for funds that seek to capitalize on the altcoin market.

According to the data, crypto hedge funds with so-called market neutral strategies – funds that seek to make money regardless of the direction of the overall market – performed the worst, with only 6.8% generated on average during the period.

Hurdles are adding up

Following the closure of crypto-friendly banks like Silvergate Capital Corp. and Signature Bank, many crypto funds are “still struggling to find new partners” for their banking needs, Maximilian Bruckner, head of marketing and sales at 21e6, said in a comment to Bloomberg.

He noted that when combined with the current regulatory uncertainty and a scramble to find safe trading venues and custodians, the number of difficulties these funds are facing has added up.