According to data provided by Switzerland-based investment adviser 21e6 Capital AG and reported by Bloomberg, a staggering 97 out of over 700 cryptocurrency funds have opted to close their doors since 2023. The reasons cited for these closures include weak performance and difficulties in obtaining banking services.
The first half of 2023 saw an average return of 15.2% for these crypto funds, which is overshadowed by Bitcoin’s impressive gain of 83.3% over the same period. This underperformance has led to an exodus of crypto hedge funds, with approximately 13% shutting down so far this year.
One of the contributing factors to the lackluster returns for these funds was the aftermath of the industry turmoil experienced in 2022, particularly highlighted by the collapse of the popular crypto exchange FTX. As a result, many funds decided to hold larger-than-normal cash positions, missing out on Bitcoin’s notable surge since the beginning of 2023.
Moreover, while Bitcoin showed impressive growth, most other major altcoins failed to keep up with the leading cryptocurrency’s performance. This added to the woes of the crypto funds, as they heavily relied on diversified portfolios.
Another challenge these funds faced was the struggle to secure banking partners. The closure of crypto-friendly institutions, such as Silvergate Capital Corp. and Signature Bank, earlier in the year left many funds grappling to find reliable banking services. This, combined with regulatory uncertainties and the need for secure exchanges and custodians, created a challenging environment for the cryptocurrency hedge funds.
Maximilian Bruckner, the head of marketing and sales at 21e6 Capital AG, expressed concerns over the funds’ ongoing difficulties in finding new banking partners. The situation has been particularly challenging for funds that relied heavily on these closed banking institutions for their operations.
21e6 Capital AG tracks more than 700 crypto funds globally, with 123 funds across 70 firms regularly reporting performance data. The majority of these funds were based in the United States, which remained the dominant location for crypto fund managers, according to Bruckner.
When analyzing the performance of various crypto fund strategies, the data revealed that market-neutral funds performed the worst, generating an average return of only 6.8% from January to June. In contrast, funds that made directional bets achieved a more promising average return of 21.9%.
Several notable crypto hedge funds shut down due to significant losses, with some of these losses attributed to assets stored on platforms that eventually collapsed. FTX, in particular, was a favored platform among hedge funds and professional crypto traders, and its collapse hit several funds hard.
For example, Galois Capital, a well-known crypto investment firm, decided to close its flagship fund after suffering from the collapse of FTX. Similarly, Miami-based digital-asset investment firm BlockTower Capital wound down its “market-neutral” crypto fund, which once managed over $100 million in assets.
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