Lame horse: betting on cryptocurrencies brought hedge funds serious losses | Articles

According to the latest report Hedge Fund Research (HFR), 2022 turned out to be a complete failure for hedge funds investing in cryptocurrencies. The corresponding HFR index at the end of the year fell by 55.1%, despite the fact that even the collapse of one of the largest crypto exchanges FTX in December led to its decline by only 5.7%. cryptonewsherald learned from industry experts and analysts what to expect the market in 2023.

Year of sinking projects and high stakes

Last year as a whole was very nervous, difficult and in most cases unprofitable for global markets and their players, but for cryptocurrencies and related projects, it can be considered almost the worst in history. So, for the whole year, the total capitalization of the cryptocurrency market decreased by 2.7 times – from $2.19 trillion to $0.8 trillion – despite the fact that the quotes of the world’s first cryptocurrency fell from about $50 thousand per coin to $16.6 thousand per coin. the end of the year.

Experts interviewed by cryptonewsherald note that the fall in the market was caused by several factors at once, and the main one is the “collapse” of several very large projects by the standards of the industry. FTX is only the loudest and most recent such crash, but it’s far from the only example. And the cleansing of the market from such projects only benefits it.


Photo: Global Look Press/Cfoto

In 2022, Terra LUNA, Celsius, Three Arrows Capital collapsed and took more assets with them than FTX. This market is cyclical, in 2018–2019 many altcoins fell by 50–80%, and then grew 30 times in a few years, but only those projects survived that had strong teams and continued to build their solutions– says Dmitry Belenov, technical lead of the SBF venture fund.

The interlocutor of cryptonewsherald from the RDV Telegram channel adds that in 2023 the market will continue to get rid of weak projects, but for its development this is more a necessity than a risk. At the same time, in his opinion, the general fall in quotations and capitalization of cryptocurrencies was primarily caused by a decrease in the risk appetite of the players themselves, caused by the tightening of monetary policy in the United States and other countries. A similar opinion is also expressed by BitRiver financial analyst Vladislav Antonov, who noted that the loud collapse of several projects, combined with the outflow of liquidity, has greatly changed the attitude of many investors towards cryptocurrencies.

— The increase in rates stimulated the purchases of the US dollar, the sale of shares and cryptocurrencies. And the bankruptcy of the FTX crypto exchange undermined the credibility of the crypto industry. Individual traders or traders of large companies who violate risk management are punished severely by the market and treated for greed by bankruptcy. The collapse of the UST and FTT stablecoins undermined confidence in the industry and cryptocurrencies, Antonov says.


Photo: cryptonewsherald/Alexey Maishev

The head of the analytical department of AMarkets, Artem Deev, agrees with him, noting in an interview with cryptonewsherald that the fall in the index is not only a consequence of the collapse of the FTX exchange, because problems with cryptocurrencies began much earlier, at the beginning of 2022.

– Inflation at record levels for decades forced the financial authorities of developed countries to raise rates, which automatically caused an outflow of investor funds from risky assets, cryptocurrencies – primarilyDeev explained.

Pick up and hold

Interestingly, last year, not only cryptocurrencies, but also the more traditional stock market failed. As the analytical Telegram channel MMI noted, hedge funds focused on managing portfolios of shares in the corporate sector lost 10.4%, which generally allowed them to beat the dynamics of the S&P 500 index, which sank over the year by 19.4%.

Much more serious losses of hedge funds from managing cryptocurrencies were explained by several interlocutors of cryptonewsherald by the difference in strategies, as well as by the low competence of individual managers in cryptocurrencies and attempts to play on them as on more familiar stock assets.


Photo: Getty Images/NurPhoto

Everything is very individual and depends on the manager. If we are talking about some kind of fund that is only engaged in speculation, then at the end of 2022 it probably had a profit. If there were crypto assets in the portfolio, which the fund simply held with the hope of growth, then they obviously have a loss. If they kept money in projects that failed – FTX, Terra and others – they were simply out of luck, ”an ex-employee of a large investment fund and private financial analyst, who wished to remain anonymous, said in an interview with cryptonewsherald.

Dmitry Belenov from the SBF fund, in turn, added that hedge funds often lack expertise in the cryptocurrency market and its assets. So they follow global movements, based on the logic “everyone is buying, so this is a trend, we open a position” without regard to the fact that we are talking about a hyperinflationary token with dubious functionality.

“In this industry, once a week something is hacked, stolen, or someone goes bankrupt. There is a possibility that some large project is now on the verge of bankruptcy and, perhaps, it will also collapse. But new players who will enter the market in 2023 will be more attentive to reporting and disclosure of information, since both regulators and ordinary users will require this, Belenov added.


Photo: Getty Images/Hispanolistic

A new cycle with unclear prospects

Despite an extremely unsuccessful year, the cryptocurrency market, along with the entire industry, will definitely continue to grow, most of cryptonewsherald’s interlocutors are sure. Thus, the representative of the Russian Far East noted that there was still no general undermining of confidence in this area last year, since experienced market participants have always understood and understand that cryptocurrencies are investment assets with a pronounced cyclical nature. Therefore, their quotes will start growing again – it’s only a matter of time.

— Of course, the crypto market is waiting for a new wave of growth, maybe not in 2023, but in 2024-2025. All unreliable projects will cease to exist, new ones will appear. This market is still very small, the total capitalization of cryptocurrencies is $853 billion, – said the interlocutor of cryptonewsherald.

Artem Deev from AMarkets also agrees that the new cycle may not start soon. According to him, this most likely will not happen in the next year, since investors must be sure that risky assets will be a profitable and safe investment.

“But it doesn’t exist now. The US and Europe are strengthening the regulation of cryptocurrencies, new bankruptcies of various sites are possible, and a global recession is expected in the world. In such conditions, investors will choose protective assets, and reduce investment in risk. So bitcoin and other coins during the year are more likely to show new record lows, rather than growth, Deev is sure.


Photo: Izvestiya/Zurab Javakhadze

Vladislav Antonov also believes that the recovery of crypto-quotes will depend both on the actions of the US Federal Reserve regarding rates, and on the regulatory novelties of the US Treasury regarding the assets themselves. And this is a very likely prospect, given the recent statement by Fed Board of Governors Michelle Bowman, who noted the significant risks of cryptocurrency transactions for consumers, businesses and the financial system as a whole.

“If regulators tighten the screws on investors in the form of prohibitive measures, clearing the way for the digital dollar, then the crypto market will remain in a sideways trend for a long time to come. It will be uninteresting because of the high risks of losing money against the backdrop of fraudulent schemes and the inability to calmly trade and store coins on exchanges, Antonov believes.

On the other hand, he notes, 2023 will be the year of preparation for the halving, which will take place in May 2024. As practice shows, before all previous events of this kind, bitcoin rose in price, and after that it accelerated. Therefore, Antonov believes, if the United States does not cause a global recession and American stock indices continue to recover, then bitcoin will have the opportunity after the Fed meeting in February 2023 to exceed $22.5 thousand per coin.


Photo: cryptonewsherald/Alexey Maishev

The funds, in turn, will continue to invest both in the cryptocurrencies themselves and in projects in this area, Dmitry Belenov from SBF is sure.

— For those who lost their money in this market fall, this is a lesson in investment literacy, for those who have been in this market for a long time — another cycle. At the same time, large funds, looking back at history, are well aware that somewhere here and now new “unicorns” are being born, admiring the Amazon stock chart after the dot-com collapse, – summed up the interlocutor of cryptonewsherald.

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