According to recent data from 21e6 Capital AG, a Switzerland-based investment adviser, crypto hedge funds have been struggling to keep up with the performance of Bitcoin in 2023. The report reveals that around 13% of these funds have shut down this year due to weak performance and difficulties in accessing banking services.
In the first half of 2023, crypto hedge funds generated an average return of approximately 15%. While this may seem impressive, it pales in comparison to Bitcoin’s remarkable 77% gain over the same period. This underperformance has been a major challenge for crypto funds, as investors are increasingly drawn to the potential of Bitcoin.
One of the key reasons behind the lagging performance of crypto hedge funds is their operational difficulties, particularly in accessing banking services. Many funds have faced obstacles in finding new partners for banking services, exacerbating their struggles. The collapse of crypto-friendly banks, such as Silvergate Capital and Signature Bank, has further compounded these challenges.
Regulatory pressure and the SEC-led crackdown on the crypto industry in the United States have also contributed to the closures of crypto hedge funds. The report highlights that 97 out of the 700 crypto hedge funds tracked by 21e6 Capital have closed in 2023. The fallout from the FTX collapse, where many funds had stored their assets, has also led to several closures.
The report further reveals that funds with “market-neutral strategies” have performed the worst, generating only a 6.8% return in the first half of the year. This highlights the difficulties faced by funds with significant exposure to altcoins, futures, or those heavily reliant on momentum signals.
While investor confidence has improved slightly, the report emphasizes that fund inflows and launches do not yet indicate a full recovery in sentiment. The crypto market outlook remains relatively flat, with little movement in total capitalization, which currently stands at $1.2 trillion. Both Bitcoin and Ethereum have experienced a slight retreat this week, dropping a few percentage points but remaining within their range-bound channels.
Trading volumes and volatility are currently at historical lows, contributing to what is being considered the longest-ever crypto winter in industry history. These challenging market conditions, coupled with the underperformance of crypto hedge funds compared to Bitcoin, highlight the need for funds to adapt their strategies and overcome operational hurdles to attract investors.
In conclusion, the report from 21e6 Capital AG underscores the struggles faced by crypto hedge funds in 2023. While these funds have generated positive returns, they have significantly lagged behind the impressive performance of Bitcoin. Operational difficulties and regulatory pressures have further compounded their challenges, leading to a notable number of closures. As the crypto market continues to evolve, it is crucial for funds to adapt and find innovative ways to navigate these obstacles.