After Bitcoin surges, altcoins have historically outperformed in the second phase of market rallies. Cryptocurrency hedge funds, which took a beating in 2022, are recovering and many are thriving. Some funds even predict that2024 will be a great year.

Take Dan Morehead's Pantera Capital fund, for example, one of the oldest and largest funds in the industry. The company’s Liquid Token Fund was up nearly 80% this year through mid-December, after falling 80% in 2022, according to a person familiar with the fund’s performance. Chainview Capital, the cryptocurrency hedge fund run by 31-year-old Dan Slavin, has doubled its performance after falling 18% last year. StokaGlobalLP, which invests primarily in so-called “altcoins,” had a return of 268% this year as of November 30, according to founder Naveen Choudary.

While the fund’s average gain cannot match Bitcoin’s more than 150% gain this year, the reversal of fortune is good news for an industry that was reeling after the collapse of FTX last year. The last crash, combined with a wave of redemptions and difficulty accessing banking services, led to the collapse of about a third of crypto hedge funds. Companies that weathered the storm are now gearing up for a better 2024 as Bitcoin prices continue to move higher on hopes the U.S. will approve exchange-traded funds (ETFs) that invest directly in original crypto tokens.

Slavin said: "It looks like another coin craze is coming. "He added,The mood in the cryptocurrency market this year is much like three years ago, when Bitcoin was on the verge of a breakout before surging to all-time highs. “It’s been a fantastic year in many ways,” he said.


Cryptocurrency hedge funds recover but fail to match Bitcoin’s surge this year

According to an index that tracks the performance of cryptocurrency hedge funds, as of December 20,Cryptocurrency hedge funds have returned an average of 44% this year, rebounding from a 52% loss in 2022. While this is the best of the 29 strategies tracked by foreign media, it still lags behind Bitcoin’s 2023 gains by about 120%. The index has also underperformed passive crypto funds, which have averaged returns of about 265% over the past year, according to CoinShares data through mid-December.

but,Survival itself is no small matter. Of the 712 cryptocurrency hedge fund firms tracked by Galaxy Digital’s VisionTrack,About 250 have closed in the past year and a half. Galois Capital, known for betting on the Luna token ahead of its implosion in 2022, closed its flagship fund this year after nearly half of its assets were trapped in bankrupt FTX.

Bailey York, who tracks crypto hedge fund data at Galaxy VisionTrack, said: "For companies that underperformed in 2022, they saw a lot of redemptions in the first half of the year. That started to change in the second half of the year, and the cryptocurrency market rebounded, in part because investors expected the United States to approve the first spot Bitcoin ETF."

In August, Grayscale Investments LLC won a key legal battle to launch a Bitcoin ETF. Fundraising for active funds has also picked up, with new fund managers entering the market, particularly in Singapore, Hong Kong, Dubai, London and Switzerland, York said. Sadie Raney, co-founder and CEO of Seattle-based cryptocurrency hedge fund StrixLeviathan, said there was a "collective sigh of relief" after FTX founder Sam Bankman-Fried was found guilty of fraud in a months-long trial in November. Since then, she's noticed a surge in interest from potential investors.

Pantera Capital's Liquid Token Fund hopes to exit the bull market in altcoins (tokens other than Bitcoin and Ethereum) next year. Cosmo Jiang, a portfolio manager at Pantera, said in an interview that this is becauseFollowing the rise of Bitcoin, altcoins have historically performed well during the second half of market rallies. “We may be in the second part of the cycle where token selection actually matters,” Jiang said. “Our investors come to us to understand the entire cryptocurrency market and technology, not just Bitcoin. Our core thesis is that if you believe this industry will grow, there must be protocols that can actually generate revenue.” One of the fund’s largest positions is dYdX, a token of the decentralized crypto exchange of the same name. According to Jiang, Bitcoin and Ethereum holdings combined account for less than 40% of the fund.

Some funds are recovering from the scars of FTX's collapse. Greg Moritz, co-founder and COO of crypto hedge fund AltTab Capital, said that 2% of his fund’s assets are stranded on the platform and are currently being liquidated in the secondary market. AltTab has about $21 million under management and expects the fund to end the year up about 30%. Moritz also added that his fund is "cautious" this year. "Right now, we're super aggressively prepared for the bull run that's coming," he said.

Moritz predicted,Cryptocurrency markets will be driven by a combination of macro and industry-specific factors, including stabilizing inflation, no further interest rate hikes from the Federal Reserve, and the Bitcoin halving that will reduce supply. He said: "In general, we feel that this year is a year of recovery. Next year is really about making a splash and celebrating."