A study from Swiss-based cryptocurrency investment adviser 21e6 Capital found that during the first half of 2023, investors would have gained more from purchasing and holding bitcoin (BTC) than from investing in crypto hedge funds.
In comparison to bitcoin’s 83% rise during the time period, cryptocurrency funds returned an average of 15%, according to data from 21e6 Capital provided to Bloomberg. The average return on directional strategy funds was 22%, far higher than the 6.8% return on market-neutral strategies, which frequently try to follow market trends—a challenging task in volatile markets—but still well below bitcoin.
The funds had to contend with the abrupt shutdown of the multibillion-dollar cryptocurrency exchange FTX in November, the closing of three banks that supported cryptocurrencies earlier this year, and the ongoing uncertainty surrounding future legislation.
It is obvious that a straightforward buy-and-hold bitcoin investment would have outperformed each of these fund baskets. By the middle of the year, Bitcoin had increased in value by roughly 80%, according to a report by sales and marketing director Maximilian Bruckner and due diligence manager Jan Spörer of 21e6 Capital. “During prior bull runs, cryptocurrency hedge funds routinely outperformed the benchmark price of bitcoin.
The complicated explanation incorporates the fact that after the collapse of FTX, which slowed reaction times, crypto hedge funds entered the year with larger-than-average cash positions to help mitigate risks. Hedge funds were also negatively impacted by the underperformance of altcoins, or cryptocurrencies other than bitcoin and ether (ETH).
In addition to monitoring 123 funds across 70 firms and more than 700 crypto funds internationally, 21e6 Capital also tracks regulatory performance reports. Approximately 97, or 13%, of those cryptocurrency hedge funds have closed as a result of the underperformance, according to data from Bloomberg. Galois Capital, a company that invests in cryptocurrencies, is one example. It declared its liquidation in February due to its significant exposure to FTX. Ineffective hedge funds were closed down by other hedge funds.