Nearly 100 Crypto Funds Fold as Market Challenges Persist in 2023

Amid a backdrop of evolving market dynamics, approximately 13% of the existing 700 crypto investment funds have been shuttered since the start of 2023, totaling 97 closures, according to a comprehensive report released by 21e6 Capital AG, as reported by Bloomberg. The study further revealed that during the first 6 months of the year, the average profitability of these funds reached 15.2%, significantly trailing the Bitcoin index, which surged by 83.3% during the same period.

The report underscored the struggles faced by investment firms employing market-neutral strategies, with their performances languishing at a mere 6.8%. Analysts attribute the underwhelming results to the crisis at the close of 2022, during which many crypto funds clung onto their assets for an extended period, ultimately missing out on the substantial profits generated by Bitcoin’s surge in 2023.

A number of these closures can be attributed to the loss of assets held on collapsed platforms, most notably the FTX exchange. This crypto exchange, favored by hedge funds and professional crypto traders, faced tumultuous times that led to substantial setbacks for several organizations. Head of marketing at 21e6 Capital AG, highlighted the persistent challenges faced by these firms, including the pursuit of new banking partners following the closures of cryptocurrency-friendly banks. The analyst emphasized that alongside regulatory uncertainty, the quest for secure exchanges and custodians has intensified the obstacles faced by venture capitalists in the cryptocurrency sector.

Despite a slight uptick in investor confidence, the influx of funds and the establishment of new ventures have yet to signal a complete recovery in market sentiment. The United States continues to serve as the predominant jurisdiction for managing crypto funds, reaffirming its pivotal role in the industry. CoinShares data indicated a significant outflow of funds from cryptocurrency investment products in the span from July 29 to August 4, amounting to $107 million, a notable increase from the $20.9 million observed in the prior week. In a parallel development, Sequoia recently marked down its crypto fund’s valuation by 66%, reducing it from $585 million to $200 million, attributing the adjustment to shifting market conditions.