Crypto hedge funds that survived a bruising 2022 are recovering, and many are thriving. Some are even expecting a banner 2024.
Take Dan Morehead’s Pantera Capital, one of the industry’s oldest and biggest funds. The firm’s liquid-token fund was up nearly 80% this year as of mid-December, after falling 80% in 2022, according to a person familiar with the performance. Chainview Capital, the crypto hedge fund run by 31-year-old Dan Slavin, has doubled after an 18% decline last year, Slavin said.
Stoka Global LP, which invests predominately in so-called altcoins, gained 268% this year as of Nov. 30, according to founder Naveen Choudary, who started his career in tech investment banking at Goldman Sachs Group Inc.
While on average funds haven’t matched this year’s more-than 150% rally in Bitcoin, the reversal of fortunes is welcome news for an industry left reeling after FTX’s collapse last year. That failure, combined with a wave of redemptions and difficulty in accessing banking services, contributed to the demise of roughly one-third of all crypto hedge funds. Firms that weathered the storm are now gearing up for an even better 2024, as the price of Bitcoin remains elevated thanks to optimism the US will approve exchange-traded funds that invest directly in the original crypto token.
“It’s looking like there’s going to be another token mania coming,” Slavin said, adding that the mood in the crypto market this year felt a lot like three years ago, when Bitcoin was on the cusp of a breakout that sent it soaring to record highs.
As the largest token grinds higher, prospective investors are picking up phone calls from fund managers again and hedging remains cheap.
“In a lot of ways it was kind of a dream year,” said Slavin. He’s looking to hire more traders and other staff, adding to his “two-man show,” he said in an interview from a makeshift workspace in his childhood home near Boston, where he started his fund before moving it to Miami.
Crypto hedge funds on average returned 44% this year as of Dec. 20, rebounding from a loss of 52% in 2022, according to a Bloomberg index tracking their performance. While that’s the best among 29 strategies tracked by Bloomberg, it still trailed Bitcoin’s gain for 2023 by about 120 percentage points. The index also underperformed passive crypto funds, which on average posted returns of about 265% in the past year, according to data as of mid-December by CoinShares.
Still, survival itself is no small feat. Of the 712 crypto hedge-fund firms tracked by Galaxy Digital’s VisionTrack, about 250 shut over the past year and a half. Galois Capital, best-known for betting against the Luna token before its implosion in 2022, closed its flagship fund this year after it had almost half its assets stuck with bankrupt FTX.
“For firms that have performed poorly in 2022, they saw a lot of redemptions through the first half of the year,” said Bailey York, who tracks crypto hedge fund data at Galaxy’s VisionTrack.