Crypto Hedge Funds Set for Strong Recovery and Optimistic 2024

Crypto hedge funds faced a major slack period following the collapse of Three Arrows Capital (3AC) last year in May 2022. However, data shows that the funds that survived this bruising are now facing recovery, and are bullish for 2024.

Crypto Hedge Funds on Solid Recovery

Pantera Capital, led by Dan Morehead, an industry veteran, witnessed a substantial rebound with its liquid-token fund surging nearly 80% by mid-December after an 80% slump in 2022. Chainview Capital, overseen by 31-year-old Dan Slavin, doubled its performance following an 18% decline in the previous year.

Stoka Global LP, specializing in altcoins, achieved an impressive gain of 268% by November 30, according to founder Naveen Choudary, a former tech investment banker at Goldman Sachs Group Inc.

While the average fund performance didn’t match Bitcoin’s over 150% rally this year, the positive reversal is uplifting news for an industry still recovering from FTX’s collapse in the previous year. The fallout from FTX, coupled with redemptions and banking challenges, led to the demise of approximately one-third of all crypto hedge funds.

Those that weathered the storm are now optimistic about a promising 2024, buoyed by the sustained high price of Bitcoin and expectations of US approval for exchange-traded funds directly investing in the original cryptocurrency.

Crypto hedge funds have witnessed a remarkable recovery in 2023, posting an average return of 44% as of December 20, bouncing back from a significant 52% loss in the previous year. This positive trend is highlighted in a Bloomberg index that tracks their performance, ranking as the best among 29 strategies monitored by Bloomberg.

Courtesy: Bloomberg

However, despite this resurgence, the average performance still lags behind Bitcoin’s impressive gain of 2023 by approximately 120 percentage points. Moreover, the index falls short when compared to passive crypto funds, which, on average, recorded returns of around 265% in the past year, as reported by CoinShares data as of mid-December.

Gearing Up for 2024

Dan Slavin, the founder of Chainview Capital, expressed optimism about a potential resurgence of token mania in the crypto market, drawing parallels to the mood experienced three years ago when Bitcoin surged to record highs. As the leading token continues its upward trajectory, prospective investors are increasingly engaging with fund managers, and hedging strategies remain cost-effective.

Describing the year as a “dream,” Slavin plans to expand his team, transforming the existing “two-man show.” Pantera Capital’s liquid-token fund, led by Cosmo Jiang, positions itself for a bullish ride in 2024, particularly with altcoins. Historically, altcoins have outperformed during the latter stages of a market rally, following Bitcoin’s ascent. Jiang said:

“We may be in the second part of the cycle where token selection actually matters. Our LPs go to us for exposure to the crypto landscape and technology as a whole, not just Bitcoin. Our core thesis is, if you believe this industry is going anywhere, there have to be protocols that actually generate revenue.”

Greg Moritz, the co-founder and COO of Alt Tab Capital, anticipates a positive trajectory for the crypto market. He foresees a boost driven by a convergence of macroeconomic and industry-specific factors, including the stabilization of inflation, the Federal Reserve’s shift away from rate hikes, and the upcoming Bitcoin halving, expected to reduce the cryptocurrency’s supply.

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