Cryptocurrency hedge funds took it on the chin in September 2020 but are up for the year, according to the latest data from Vision Hill Group, which on Nov. 3 published its latest results.
The Vision Hill Composite Index, which is a reflection of the performance of a trio of crypto hedge fund strategies, was down nearly 6% in the month of September, the latest data that the firm has available. The hedge fund strategies include fundamental, quantitative and opportunistic, while the composite index is meant to reflect “the breadth of crypto hedge fund performance across all strategies.” The performance was in line with the bitcoin price, which fell about 10% in September.
— Vision Hill Group (@VisionHill) November 3, 2020
Year-to-Date Crypto Hedge Funds Shine
Over a longer time horizon, the results better reflect the bitcoin bull market. So far in 2020, the bitcoin price is up a staggering 88%, outpacing rival store-of-value gold, whose gains hover at 23%, Messari pointed out. Hedge fund managers are sophisticated traders and are paid lofty fees to outperform the market. So far this year, they’ve done their job.
The Vision Hill Composite Index is up 114% year-to-date. The fundamental hedge fund strategy has been the best performing hedge fund strategy by far, gaining 230% on the year. Quantitative and opportunistic strategies follow with 58% and 32% gains, respectively, in the same period. They have navigated a tricky year in the cryptocurrency market in which bitcoin’s correlation with the stock market has ebbed and flowed, most recently moving in the opposite direction of the S&P 500.
Venture-Like Crypto Hedge Funds
Similar to the traditional financial markets, hedge funds that operate in the cryptocurrency space don’t all survive to tell about it. On a recent Coinscrum episode, Novum Insights CEO Toby Lewis gave the lay of the land, saying there are about 300 crypto hedge funds trading in the market. Most of them trade the most liquidity cryptocurrencies, such as BTC, ETH bitcoin variants. Lewis likened the lifespan of crypto hedge funds to fireflies because “they can be pretty short sometimes.”
He also described crypto hedge funds as “quasi venture capital,” pointing to mainstay firms such as Pantera Capital, DCG and Polychain Capital. While they each deploy their own hedging strategies, they also direct their capital toward buying new issues.
Incidentally, Spencer Noon, head of investments at crypto-native investment fund DTC Capital, noted how competitive the VC landscape is looking, saying that the onus is on the funds to “provide real value” or “they won’t survive long term,” which he views as bullish for the industry.
The #crypto VC landscape has never been more competitive. It’s no longer just about showing up with a checkbook. Funds have to provide real value or else it’s looking like they won’t survive long term. This is extremely bullish for our space.
— Spencer Noon (@spencernoon) November 3, 2020
With the bitcoin price now hovering between $13,000 and $14,000 and the likes of household names like PayPal entering the fray, institutional investors are said to be finally coming off of the sidelines and dipping their toe into the cryptocurrency waters.