The first thing to note is that, despite the safe harbor characterization of cryptomoney, the asset class itself for March seemed to be closely correlated with traditional public markets. In addition, there were some notable crypto funds that became insolvent due to unhedged positions, a leverage mismatch or difficulties in carrying out proper risk management. As in December 2017, some funds were so far below their high mark that fund managers decided to liquidate them, issue mandatory redemptions and stop trading.
On average, crypto hedge funds were down among our clients, but not as low as their traditional counterparts. Both categories did not fall as much as their respective market benchmarks.
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Not surprisingly, we can identify two groups
Funds with market exposure (e.g. long-term funds) mostly reflected and collapsed in the market – although we have seen exceptions – while market-neutral crypto hedge funds mostly performed better consistently.
The more stable funds tend to be systematic, using a combination of market-neutral strategies, such as statistical arbitrage, and tend to perform between 1% and 2% per month under any conditions. Several of our clients have stuck to these figures even with the coronavirus crisis, and with the increased opportunity presented by volatility, some of them are even outperforming and presenting an alpha indicator.
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It is worth noting that, unfortunately, some of these market-neutral funds have suffered from „poor execution“ by their broker/exchange, which did not allow them to perform as they should. Overall, funds in this category have largely minimized losses compared to funds exposed to the market.
In this regard, it should be noted that, overall, the industry as a whole has been very resilient to the crisis: we have not seen any socialized losses on any major exchange, and very few have disengaged. Thanks to the digital nature of crypto space, the industry is doing very well in the new world where you „work from home“ with minimal disruption.
As in traditional public markets, the industry expects market-neutral hedge funds to regain their momentum as investors seek to reduce their exposure to market uncertainty.
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This factor, in addition to the current market volatility, may explain why Vauban has never received so many requests to launch new hedge funds, and a good percentage of them are from crypto fund managers. We expect that hedge funds will flourish in the coming years and that there will be an appetite among investors for these funds.
Hedge funds in crypto continue to be a fantastic opportunity for investors. While there are risks inherent in the industry in its current state that need to be taken into Bitcoin Profit, Bitcoin Era, Bitcoin Code, The News Spy, Bitcoin Circuit, Bitcoin Evolution, Bitcoin Revolution, Bitcoin Billionaire, Bitcoin Trader, Immediate Edge account, market-neutral funds that stick to their scope offer a good opportunity for consistent long-term performance, which would be very difficult to achieve in traditional markets. On the other hand, some directional funds are expected to make significant returns for their investors in the short term.