Crypto Hedge Funds Face Tough Year in 2022, But Still Outperform Traditional Counterparts
In 2022, crypto hedge fund managers faced a particularly tough year, with many teams experiencing significant losses in just days or even hours, resulting in significant redemptions from their investors.
The digital assets sector faced challenges due to increased regulatory scrutiny in the US and elsewhere, resulting in the worst 12 months for portfolio managers in recent history.
However, despite this, the sector has seen a rise in new funds and talent from traditional finance, with Forteus Research’s recent report stating that there has been a “migration of talent from traditional finance into digital assets.”
According to the report, digital asset portfolio managers have achieved better absolute returns compared to traditional portfolio managers for a minimum of 36 months.
The lack of institutional-grade infrastructure has been a significant obstacle to the widespread institutional adoption of crypto. The adoption of cryptocurrencies has been facilitated by recent developments, such as the emergence of more specialized firms and the growth of service providers.
There are now over 400 crypto trading options available, with a focus on derivatives trading, particularly futures and perpetual swaps.
The trading of digital assets is fragmented, which can lead to price dislocations and inefficiencies. The current state of digital assets trading, where price dislocations are common, offers a chance for arbitrage strategies with limited basis risk and leverage.
This is further supported by the fact that approximately 65% of all digital assets trading volumes are now transacted through derivatives, such as futures and perpetual swaps, resulting in high demand for arbitrage strategies.
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However, the industry still faces several headwinds, including a lack of allocator awareness, proper prime brokerage solutions, and the collapse of FTX, which has “undoubtedly undermined trust in crypto service providers.”
Although faced with obstacles, the recognition of cryptocurrencies by traditional finance is gradually increasing, as evidenced by the partnership between Coinbase and a Blackrock platform, which is open to institutional investors, cited by Forteus as a positive illustration of “traditional and crypto firms…working together.”
In conclusion, the digital assets sector has faced significant challenges in recent years, but with the emergence of new funds and talent, greater institutional adoption is becoming more feasible.
Despite the industry’s obstacles, opportunities for arbitrage strategies with limited basis risk and leverage continue to maintain momentum on returns and investor interest.
Alexander Stefanov
Reporter at CoinsPress
Alex is Editor-in-Chief of Coinspress and co-founder of Millennial Media Group, with nearly a decade of experience covering financial markets - crypto first, then everything else. It started in 2016 with Bitcoin. Like most people at the time, he didn't fully understand it - so he kept digging. Blockchain, tokenomics, the projects, the cycles. That curiosity never stopped, and eventually pulled him into traditional markets too: equities, commodities, macro. Not because he left crypto behind, but because you can't properly understand one without the other. What drives him is straightforward: he wants to know why something is happening, not just that it's happening. Most market coverage stops at the headline - price up, price down, here's a chart. Alex finds that kind of reporting actively unhelpful. If you walk away from an article without understanding the mechanism behind the move, what did you actually learn? He holds a degree in Tourism from New Bulgarian University - not the most obvious path into financial markets, but markets have a way of pulling in people who are simply too curious to stay out. He has authored over 200 in-depth analyses and more than 10,000 articles across crypto and traditional finance. He still thinks every day in markets teaches him something new. That's probably why he hasn't stopped.
