Crypto hedge fund traders were not immune to bitcoin’s downright frigid bear market. Just look at Polychain Capital, whose assets under management (AUM) fell to $591.5 million at year-end 2018, according to a regulatory filing cited in the Wall Street Journal.
The San Francisco-based crypto hedge fund boasted $1 billion in assets as of February 2018, which in addition to cryptocurrency included unspent cash pledged by investors and equity holdings in companies, Fortune reports.
The value of Polychain’s AUM, however, tumbled nearly 40% between April and December 2018 when the bear market gripped bitcoin. Importantly, Polychain’s AUM shrunk due to a drop in the “value of its holdings,” not because of investor withdrawals, the filing points out. The decline was also less severe than the broader crypto market, whose “aggregate value” narrowed by 70% in the same period.
Polychain, which is led by Olaf Carlson-Wee, entered the crypto hedge fund market in 2016. It was one of the earliest funds to invest in cryptocurrency instead of company equity.
The firm oversees five funds: Polychain Ventures, Dfinity Ecosystem Fund, Polychain Master Fund, Polychain Master Fund II, and Polychain Opportunities Fund I.
Meanwhile, Polychain’s weak performance in 2018 didn’t come without any casualties, reportedly costing founding principal Ryan Zurrer his job, according to The Block.
Polychain Capital’s AUM crash comes at a bad time for a crypto hedge fund industry that’s still in the early stages of growth. An October 2018 report by Crypto Fund Research said that of the 600 hedge funds that were expected to hit the market last year, 20% would focus on cryptocurrencies.
In 2017, 16% of new hedge funds were dedicated to crypto assets, up sharply from 3% in 2016. The report went on to state that there are a total of 303 crypto hedge funds with AUM of less than $4 billion.
It wouldn’t be surprising to see a slowdown in the number of crypto hedge funds launched. Investors might look to traditional investment vehicles to avoid burning their hands if the bears regain their footing.
On the other hand, the bitcoin price has shot up remarkably year-to-date.
Another upside to the bitcoin price rally is that the value of Polychain Capital’s assets could capture some of that upward momentum. All is not lost for this crypto hedge fund despite troubling times last year.
Last modified: March 4, 2021 2:44 PM