Bitcoin investment was more profitable than crypto hedge fund in H1 2023

A new report has shown that investors would have benefited more from buying and holding Bitcoin than investing in crypto hedge funds during the first half of 2023. 

According to a research report from Swiss-based crypto investment adviser 21e6 Capital, the classic buy-and-hold approach to Bitcoin outperformed most crypto funds by 68.8% in the first six months of the year.

This is largely due to the fact that bitcoin was one of the best-performing crypto assets in the first half of 2023, seeing massive gains from prospects of the SEC approving a Spot Bitcoin ETF. The price of Bitcoin started the year around $15,500 and climbed to over $31,400 in July.

Crypto hedge funds gather money from investors to invest in crypto projects, including blockchain ventures, derivative projects, and multiple other digital asset industry projects. In other words, they are investment vehicles that gather capital from multiple investors intending to secure higher investment returns. 

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Investors typically join a hedge fund because it is easier to bear the high management costs and brave the risks of investing in a hedge fund. The scheme has proven to be a profitable venture for players in the space in the past, and it is interesting to discover how the tides turned in favour of the typical Bitcoin investment in the first half of the year.

The 21e6 report 

The Switzerland-based investment adviser 21e6 Capital AG report says on average, crypto funds generated returns of 15.2% in the first half of 2023, but bitcoin saw gains of around 84%.

“All crypto fund strategies achieved positive results this year. But relative to Bitcoin, they underperformed, especially those with significant exposure to altcoins, to futures, or those strongly dependent on momentum signals.” – the 21e6 report. 

In the report, 21e6 Capital AG’s head of marketing, Maximilian Bruckner, outlined that crypto hedge funds have been “frequently able to significantly outperform Bitcoin in previous bull runs.” 

He attributed much of the underwhelming performance of crypto hedge funds in 2023 to the challenging market conditions and their significant cash in late 2022.

Following the implosion of FTX and other crypto projects in 2022, the report suggested that many crypto funds opted to take fewer risks, therefore missing out on a significant BTC price rally in H1 of 2023.

The report adds:

“Funds with large cash positions will underperform Bitcoin in a bull market unless the funds’ assets perform significantly better than Bitcoin.

“Due to the general sentiment left behind by the end of 2022, many funds had larger-than-normal cash positions. Furthermore, most major altcoins also underperformed Bitcoin – a tough environment for funds.”

How FTX closure made crypto hedge funds underperform 

Due to the sudden closure of the multibillion-dollar crypto exchange FTX in November, crypto hedge funds struggled. Persistent challenges stemming from the FTX bankruptcy affected the performance of crypto hedge funds. The fallout from the crisis has even forced the closure of some crypto funds.

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21e6 Capital tracks more than 700 crypto funds globally, as well as the regulatory performance reports of 123 funds across 70 firms, and the firm reports that the underperformance has led to the closure of about 97, or 13%, of those crypto hedge funds. For instance, crypto investment firm Galois Capital with $40 million worth of assets trapped in the FTX exchange, announced its closure in February.

Also, the closure of three crypto-friendly banks earlier this year and the continued turbulence around potential regulations contributed to the decline. Following the FTX crisis, many banks adjusted their approach to the crypto sector as a whole. Under increased regulatory scrutiny, previously crypto-friendly banks cut off ties with crypto hedge funds. 

In conclusion, FTX was a prominent crypto derivatives exchange for hedge funds. But now that there is still no clear alternative to take its top position, crypto hedge funds are expected to struggle, at least in the near term.