2019 Performance of Crypto-Based Hedge Funds Varied Heavily Based on Type

As crypto prices rose throughout 2019, cryptocurrency-based hedge funds’ AUM (assets under management) surged. However, according to a new survey report from PwC and Elwood Asset Management Services Ltd., there were some significant differences in performance throughout the year depending on the specific type of fund.

Citing data from the report, Bloomberg explained that by the end of 2019, there were $2 billion in crypto funds’ AUM by the end of 2019, up from $1 billion at the end of 2018; over the same time period, the average AUM per fund increased from $21.9 million to $44 million.

Throughout the year, discretionary long-only funds did the best, with a median performance of 40 percent and an average 42% gain. Discretionary long/short funds had both an average and median advance of 33 percent, while multi-strategy funds increased a median 15 percent.

At the same time, quantitative funds saw a median 30 percent increase and a 58 percent gain. According to Bloomberg, the 28-percentage-point difference between the increase and the median implies “that there were some outsized outperformers.”

Henri Arslanian, PwC global crypto leader and partner, commented to Bloomberg that “the Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term of crypto markets offers many opportunities for quant traders,” and that “the performance of crypto quant funds tends to be more linked with market volatility rather than market performance.”

(However, it’s important to note that the survey results were provided by the fund managers themselves, and weren’t verified by a third party.)

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Another notable finding in PwC and Elwood’s report was the prevalence of Bitcoin in these cryptocurrency-based hedge funds. 97 percent of survey respondents said that BTC was included in the fund/s they manage, while Ethereum was including in 67 percent; Litecoin was present in 38 percent, while Bitcoin Cash and EOS rang in at 31 percent and 25 percent, respectively.

The report found the prevalence of Litecoin in these funds “interesting”: “Litecoin was mentioned by funds as one of their top-traded altcoins despite its market cap being relatively smaller than the other mentioned altcoins,” the report said.

Additionally, the report found that nearly half (48 percent) of the investors in hedge funds were family offices, while high-net-worth individuals comprised 42 percent of the investors. The remaining percentage is attributed to foundations or endowments, venture-capital funds or funds-of-funds; none of the respondents cited pension funds.

But this could change overtime: Arslanian told Bloomberg that “I expect the crypto hedge fund industry to grow significantly over the coming years as investing in a crypto fund may be the easiest and most familiar entry point for many institutional investors looking at entering this space.”