Sometimes it doesn’t pay to diversify — just ask cryptocurrency hedge fund Pantera Capital, whose fund underperformed the bitcoin price last month.
According to Bloomberg, the firm’s Digital Asset Fund underperformed bitcoin during May as the cryptocurrency markets continued to decline further from the all-time highs they set in late December and early January.
Pantera CEO Dan Morehead acknowledged the poor performance in a monthly investment letter distributed to clients on Tuesday, explaining that the fund had dropped 26 percent for the month and is now down 51 percent in 2018.
The bitcoin price, meanwhile, posted a 15 percent decline in May and is also down approximately 51 percent for the year. That may not exactly be an attractive return on investment, but at least it comes without Pantera’s management fee.
Pantera’s poor performance in May represented a sharp reversal from April when it rallied 46.2 percent to outperform the flagship cryptocurrency, as well as the crypto market writ-large. Morehead attributed the recent decline to its stakes in Dash, Waves, Bitshares, and OmiseGo, assets which fared poorly during the period.
Diversification is a common investment strategy, but its wisdom in regard to the cryptocurrency markets has long been in debate. Individual asset prices remain highly-correlated, and even today the majority of fiat investments flow into the cryptocurrency ecosystem through bitcoin.
Moreover, so-called “bitcoin maximalists” often point to market cap charts from past years as evidence that — at least to date — diversification has been a poor strategy. To wit, just two of the 10 most valuable cryptocurrencies in June 2013 — bitcoin and litecoin — still rank in the top 100.
That’s an extreme situation, given the nascency of the ecosystem at the time, but glances back at market cap charts from years past reveal a number of now-forgotten projects that investors once believed could take bitcoin’s crypto-crown.
Nevertheless, off-the-shelf diversified investment products continue to grow in popularity. The Coinbase Index Fund recently began accepting investments from accredited investors looking to purchase at least $250,000 worth of cryptoassets, while firms including Grayscale Investments, OKEx, Huobi, and Bitwise Asset Management have rolled out index-tracking products in recent months.
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Last modified: June 14, 2020 10:58 AM UTC