Encryption Hedging Fund Development Trends: Asset Scale, Investment Strategies, and Performance Analysis

A recent survey report revealed the development status of cryptocurrency hedging funds. In 2019, the asset management scale (AUM) of these funds grew from $1 billion at the end of 2018 to $2 billion, marking a significant increase. Throughout 2019, fully delegated long funds performed the best, with an average return of 42%. It is noteworthy that family offices and high-net-worth individuals are the main investors in these funds, accounting for 48% and 42%, respectively.

The report shows that there are currently about 150 active encryption hedging funds, of which nearly 63% were established in 2018 or 2019. The establishment activity of these funds is highly correlated with the price trends of Bitcoin. These funds primarily adopt four investment strategies: discretionary long, discretionary long/short, quantitative investment, and multi-strategy combinations. Among them, quantitative funds are the most common, accounting for nearly half of the market.

From the composition of investors, family offices and high-net-worth individuals account for almost 90% of all investors. In contrast, the participation of pension funds, foundations, and donor-advised funds in cryptocurrency investments is extremely low. The median number of investors per fund is 27.5, and the median investment size is $300,000.

There is a significant Matthew effect in terms of asset management scale, with a few large funds controlling the majority of assets. In 2019, the proportion of encryption hedging funds with an asset management scale exceeding 20 million dollars rose from 19% in 2018 to 35%.

In terms of performance, the median increase of encryption hedging funds in 2019 reached 74%, far exceeding the negative 46% of 2018. By strategy type, fully delegated long funds performed the best in 2019, with a median performance of 40%. It is worth mentioning that Bitcoin's increase of 92% in 2019 surpassed the performance of all encryption hedging funds.

With the development of the encryption lending market and the diversification of derivative varieties, the investment strategies of encryption hedge funds are also becoming increasingly diversified. Surveys show that 48% of the surveyed funds hold short positions, and 56% use derivatives. In the future, with the increase of regulated encryption futures products, it is expected that more funds will enter this field.

In terms of leveraged trading, the proportion of funds using leverage rose to 56% in 2020, but only 19% were truly active in using it. In the future, more funds may be permitted to use leverage in their investment prospectuses, but the actual usage remains to be seen.

Overall, encryption hedging funds are gradually aligning with traditional hedging funds, with investment tools and strategies becoming increasingly complex. This trend indicates the continuous maturation and deepening of the encryption financial market.