The state of crypto hedge funds

Cryptocurrency hedge funds - SPwC released its annual Crypto Hedge Fund report, which contains numerous interesting statistics – fees, size, investor source, strategies, liquidity, performance…

Here are the main takes:

  • There are ~200 crypto hedge funds, managing $3.8 bn of crypto assets. The typical fund has $20 AUM and 23 investors.
  • The investors are 85% UHNW/FamOff, with a typical ticket size of $0.5-1 m. Fund of funds are a distant 4%.
  • The most common approaches are

Crypto hedge fund approaches

  • As of year-end 2020, the performances (very dependent on crypto levels) are

Crypto hedge fund 2020 performances

    • The fees are above 2 & 20%, well above today’s HF industry averages, but still insufficient to make most fund viable, considering the small AUMs:Crypto hedge funds - Management fees
  • Most funds are involved in Staking, Lending & Borrowing cryptos.
  • The trading is concentrated in few currencies. To a few exceptions, most of these have trading volumes way larger than their market caps.

Crypto hedge funds - Trading volumes by currency

  • Most funds now use derivatives:

Crypto hedge funds - Use of derivatives

  • Half the funds (51%) are using leverage.
  • As of December 2020, BTC was hovering around $29k. Most HF managers were targeting a price of $50-100k for Dec 2021, if not much higher. As of now BTC is worth ~35k.

Crypto hedge funds - BTC prediction

  • Crypto hedge funds typically have a team of 6-8 people.
  • Most funds (81%) have a separate custodian, 88% use and independent fund administrator, but only 38% have an independent director on their board. 38% use independent third-party research.
  • Most of the funds offer monthly liquidity, but lock-ups are frequent:

rypto hedge funds - Liquidity

  • And so are gates (liquidity restrictions at the aggregate fund or investor levels):

Crypto hedge funds - Gates

  • Crypto hedge funds have all the tax issues met by hedge funds, but crypto have specificities, notably the diversity of jurisdictions and tax exposures (different strategies have different taxations).
  • Hedge funds invest in crypto for diversification first.

Crypto hedge funds - Motivation

  • The main challenges for the industry remain the reputational risk, the regulatory uncertainty and the lack of service providers.

Crypto hedge funds - Challenges

  • 80% of hedge funds surveyed do NOT invest in crypto currencies. And 75% of those are waiting for the class to become more mature. 57% do not foresee any investment in crypto in the next 3 years.




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Written by Gontran de Quillacq

Gontran de Quillacq is an expert witness and a legal consultant. He is a recognized authority in options, trading, derivatives, structured products, portfolio management, hedge funds, mathematical finance, quantitative investment, strategy research and financial markets in general.


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