Some cryptocurrency hedge funds appear to be unaffected by the decline in the price of bitcoin since the start of 2018. In fact, a couple of these firms have even posted profits thereby reinforcing the idea that crypto hedge funds can thrive in both bull and bear markets.
2018 has mostly been a bear run in the bitcoin market with an average of about 40 percent in losses. Despite this, some virtual currency market making and arbitrage strategy firms have managed to record first-quarter profits. The first quarter performance of crypto hedge funds is a striking reversal from 2017 when crypto hedge funds, despite making gains, lagged behind the more bullish market participants by a considerable margin.
Crypto Exposure without Volatility
Market neutral hedge funds seem to be finding ways to make a profit from the crypto market despite the wild price swings. Part of this is because they don’t place bets on whether prices rise or fall. This means that their investments in the crypto market are to a certain degree, free from the extreme volatility of the market. Such an investment strategy is likely to appeal to institutional investors who want to get into the market without having to be on the receiving end of wild price swings.
According to Cedric Jeanson of BitSpread Group, the fund manager of the Market Neutral Liquidity SP-Institutional crypto portfolio, the fund recorded a 5.6 percent profit in the first quarter of 2018. Market Neutral Liquidity SP-Institutional is based in the Cayman Islands. Pivot Digital Trading-2 (PDT2) is another crypto hedge fund that has recorded a profit so far in 2018. The fund which is managed by Amber AI Group rose by 4.3 percent in March to bring its first-quarter profit to 30 percent. The fund is reported to be the most profitable for the year 2018 so far.
Market Neutral Liquidity SP-Institutional has an asset management portfolio that is worth $100 million. The hedge fund makes markets for bitcoin, ether, and ripple. PDT2 trades the top 25 cryptocurrencies on many of the largest cryptocurrency exchange platforms such as OKEx, Huobi, Kraken, and Binance. According to Tiantian Kullander, one of the co-founders of the firm, the fund began in early 2018 with an initial asset portfolio of $25 million. The fund focuses on market-making, trend following and arbitrage trading (exploiting price discrepancies of cryptos in different exchanges).
Crypto Hedge Fund Losses in 2018
It has not, however, been smooth sailing for all crypto hedge funds seeing as they are still correlated to the market. Thus, the hedge funds that place directional bets on the market have been negatively affected by the crypto market slump.
Silver 8 Partners, one of the funds that have recorded a loss, dropped 25 percent in March to bring its first-quarter loss to 32 percent. The negative result was made known in a correspondence sent to the fund’s investors. Silver 8 has investments in blockchain startups, machine learning firms, as well as some fintech and cryptocurrency companies.