The State of the Crypto Hedge Fund Industry

Last week we received the issuance of the 5th Annual Global Crypto Hedge Fund Report (2023) prepared by PwC, Coinshares and AIMA.

As per the previous edition, #Belobaba has the pleasure of participating among other fellow specialised Investment Funds in the Industry.

The report is packed with important insights about how the ecosystem is evolving and which direction and shape is taking.

You will be able to access the full document in the following link.

In the upcoming days many professionals are going to cover different findings of the paper in areas such as Assets under Management, Use of Third party providers such as auditors and custodians.

However, I would like to drive your attention to a specific point that in my view, represents the most important shift in the way C-Suits are managing the Investment Funds.

The Investment Strategy.

We saw a shift from Market Neutral and Quantitative Strategies to give place to Discretionary alternatives in the way the fund chose to seek Alpha in 2023 as opposed to the options in 2022.

The graph above supports my commentary but what are the reasons behind this change?

Three reasons in my view:

1. Due to corporate failures, there are less specialised platforms offering spot and leverage trading products to Investment Funds, 

2. The latest real scandals and rumours about imminent collapses in Crypto exchanges had scared many institutions away and, 

3. With the high uncertainty (sorry for not saying volatility) in the market trends, many Investment Funds are more inclined to invest in top quality projects that are still in early stages enjoying the benefits of valuing its portfolios at par at least for a few months previous to the launches of these tokens.

You may agree or disagree with me but in any case, the shift from Full Quants to Fundamental Discretionary is here to stay for the rest of 2023 and maybe the first part of 2024.

The second finding I consider worth mentioning is the Low importance that Investment professionals are giving to the hostile approach taken by the SEC towards Crypto because One thing is how the Regulator looks at the Tokens running through the markets and other completely difference is how the Legislation and Exceptions continue to make the US as one of the most favourable places to Incorporate and operate an Investment Fund.

Until next time.