March Crypto Hedge Fund Performance Update
In March, the crypto asset class saw more gains. The VisionTrack Crypto Hedge Fund Composite Index gained +5.03% bringing the year-to-date return to +26.23%. Bitcoin surged another +22.99% bringing its through-month performance to +71.87% on the year. The Bloomberg Galaxy Crypto Index returned +11.96% and Ethereum trended up +13.49% in March.
Through March and year-to-date all sub-categorical indices continue to trail Bitcoin, though Fundamental funds have seen sizable gains to start the year. In March, the VisionTrack Fundamental Index ticked up +8.50%, its year-to-date performance reaching +50.14%. The VisionTrack Quant Directional Index performed modestly to start the year, ticking up +3.24% in March, bringing its end-of-quarter performance to +14.47%. The VisionTrack Market Neutral Index climbed +1.16%, a +5.23% year-to-date thus far.
March was yet another operationally challenging time for crypto hedge funds. The recent action put crypto hedge funds in a scramble for alternative crypto-friendly banking institutions. After the viral emergency financing of SVB, many crypto hedge funds looked to add new partners or move capital in creative means to protect funds. According to VisionTrack and though 2022 the most used fiat banks for crypto hedge funds were Signature, Silvergate, and Silicon Valley. While it is still too early to assume how banking relationships in the market will be officialized for all funds, we are continuing to see funds expand their current banking relationships.
In timely fashion, Coincub, a cryptocurrency research and ranking firm, tracking compliance and growth of the crypto economy released their Banking Report for 2023. A notable finding, Europe leads the way with 55 crypto-friendly banks, 14 of which are domiciled in the United Kingdom. Additionally, the report taxonomizes crypto-friendly banks into three categories; traditional, fintech, and crypto-focused. According to Coincub, traditional banking institutions encompass roughly 48.4% of crypto-friendly banking partners, whereas crypto-dedicated banks make up only 15.1% of total banks.
On the topic of service providers for the institutional exchanges. The high-level narrative outstanding in US circles remain on Coinbase and Bittrex; two crypto exchanges that have come under close watch from the U.S. Securities and Exchange Commission’s Enforcement Division. As indicated on Richie Lai the final week of March via Twitter, Bittrex stated they would begin the process of winding down its US operations. And more recently today, Brian Armstrong indicated that the exchange “would consider moving away from the U.S. if the regulatory environment for the industry does not become clearer.”
For almost a year, the institutional crypto market has been positioned with incredible regulatory uncertainty. Along with a drastic annual drop in AUM, the fundraising environment continues to be challenging for all fund strategies. A notable trend, many firms in the market consolidated the number of offered funds over Q1. For example, crypto-dedicated firms with 3-5 strategies reduced their product offering to focus on flagship funds. Despite consolidation from platforms and crypto hedge funds, crypto venture fundraising showed some positive news to start the quarter. Nearly $2.2b in total fund value was raised in the first quarter of this year across 14 total funds, a figure most closely resembling Q1 2021 - Q2 2021.
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