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B. G., Opalesque Geneva: Bitcoin's 2023 rally took it past the $42,000 market and helped put the crypto winter of 2022 far in the distance. According to Nico Cordeiro, the CIO of digital asset fund manager Strix Leviathan, if there is any additional indication that we are indeed in the early stages of the next speculative cycle, it is how quickly the Binance story came and went with no significant impact on market behaviour.
Binance, a global company that operates the largest cryptocurrency exchange in terms of daily trading volume of cryptocurrencies, said in its 2023 year-end report that it had reached the mark of 170 million registered users and claimed its industry was stronger than ever before.
"For a quick rundown," Cordeiro explains, "some claimed that Binance was a Ponzi scheme, similar to FTX, and that the US government had enough evidence to lead an international effort to completely shut them down. This was a significant source of concern for crypto sentiment throughout the year. The end result, however, was a $4.3bn fine for Binance and their CEO was required to step down. With these Binance legal concerns largely out of the way and the possibility of additional regulatory clarity with Bitcoin spot ETF approvals on the docket, the stage is set for explosive growth in the (digital) asset class next year, further fuelled by the next Bitcoin halving in April."
Widely considered to be the most important event in the crypto calendar, the Bitcoin halving is a process whereby the Bitcoin mining reward is cut in half to reduce the number of new coins entering the network.
Ever since Blackrock originally filed its spot Bitcoin ETF application with the U.S. SEC in June, the impending approval of such a financial product has been the key area of focus for the crypto market. A spot Bitcoin ETF would allow investors to gain access to Bitcoin without needing to hold their investment in a Bitcoin wallet.
Nico Cordeiro will present his outlook and his funds at our next webinar on January 16, Small Managers BIG ALPHA Episode 13 (details below).
Two digital assets hedge funds
Seattle-based Strix Leviathan, which was founded in 2018, runs a directional systematic fund (the Nest Fund) and a market-neutral DeFi yield fund (the Aurora Fund). The funds are a testimony to this past year's digital asset space's resilience.
The Nest Fund I, LLC is an actively managed systematic fund that trades (long and short) the top 20 liquid digital assets. The system includes a variety of algorithmic models including trend-following, cross-sectional momentum, and short-term supply/demand imbalances. The assets that are traded include currencies, decentralised finance (DeFi), smart contract platforms, and decentralised apps.
Decentralised finance is a new financial paradigm that leverages distributed ledger technologies to offer services such as lending, investing, or exchanging crypto assets without relying on a traditional centralised intermediary.
The Delaware-domiciled fund was up 29% YTD after returning 23% in November 2023 compared to the Bitwise BITX index return of 10.7%. It annualised 15% net in returns and 39% in volatility since inception in May 2018, according to documents seen by Opalesque.
The Bitwise 10 ex Bitcoin Crypto Index Fund index was up 93% (net) at the end of 2023, but down 52% since inception in September 2021. Bitcoin, the first decentralized cryptocurrency, increased by about 165% in the last year.
"November marked another strong month for the cryptocurrency markets with broad
strength across the entire asset class," according to Cordeiro. "Notably, Bitcoin underperformed the rest of the asset class for the first time in quite a while as alternative cryptocurrencies continued to claw back some of the relative underperformance against the kingpin. AVAX, which has had a particularly rough time during the bear market (down ~94% from all-time highs at the start of the month) was the month's big mover, returning 95% in a single month."
The Nest Fund will continue to focus on systematically identifying market trends and opportunities for relative outperformance across large-cap cryptocurrencies, he adds.
After gathering a seven-month track record, the Aurora Fund launched in July 2022 and endured extremely volatile crypto markets following the collapse of FTX in November of that same year. It is a market-neutral fund that aims to generate yield from the many emerging opportunities in the DeFi universe. The fund interacts directly with DeFi applications including decentralised exchanges and lending/borrowing platforms. It takes a quantitative systematic approach to strategies, including liquidity provisioning, yield farming, and lending arbitrage. It was up 10% YTD after returning 0.4% in November 2023, and up 14% ITD, according to documents seen by Opalesque.
"The Fund will continue to target attractive yields in a variety of DeFi protocols while also
exploring potential on-chain trades that will allow the Fund strategy to combine staking
yields with on-chain basis trades. We expect the Fund to accrue additional yield as these
basis trades historically benefit from growing bullish sentiment amongst directional
traders," says Evan Morris, the Fund's manager.
The Eurekahedge Equity Market Neutral Hedge Fund Index was up 4.6% YTD after returning 1% in November 2023, and the CBOE EurekaHedge Crypto-Currency Index was up 68% YTD after returning 14%. Separately, the number of traditional hedge funds investing in crypto-assets in 2023 fell to 29% - down from 37% in the previous year, according to a July report from PWC.
Related articles:
21.Mar.2023 Quantitative crypto hedge fund opens latest fund to investors
16.Nov.2021 Opalesque Exclusive: Quantitative crypto hedge fund makes itself comfortable in volatile environment
Upcoming webinar:
Small Managers - BIG ALPHA Episode 13
Episode 13 of this ground-breaking webinar series presents you with another carefully screened panel of smaller and/or emerging alternative investment managers worth taking a look at.
In one hour, you'll meet them all, get to know their top quartile strategies, and - since this an interactive session - you can ask your questions.
When: Tuesday, January 16th at 11 am Eastern Time (ET)
Who:
• Bas Emmerig, founding partner and PM, Savin Investment Partners
• John Brenard, managing director and founder, Southview Timberland Investments
• Nico Cordeiro, CIO, Strix Leviathan
Free registration: www.opalesque.com/webinar/
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