📈 Hedge Fund Strategy 📈
The most popular is quantitative strategies. These involve strategies that are usually market neutral but take advantage of statistical arbitrage opportunities. The second most popular strategy is a discretionary long-short. This usually involves taking a view on direction up or down on a range of crypto assets. Third up we have the discretionary long strategy. This is basically just buying particular assets and sitting on them as a HODL. This shows that despite how sophisticated some of the investing strategies are of these hedge funds, they are underperforming the benchmark.
📊 Investor Profile 📊
The bulk of the funds are coming from high net worth individuals and family offices. The percentage of funds that are coming from other types of institutions (fund of funds, asset managers etc) is negligible. This makes sense given that these HNW individuals and family offices are more likely to risk their funds. However, the average retail investor that invests in a mutual fund or fund of fund will not be able to take advantage of these.
📈 Performance of Strategies 📈
The strategy that had the best performace in 2020 was the discretionary long. This is also interesting given that this was one of the least popular strategies within the year. This shows the virtue of the hodl. On average, if you had been investing in a fund that employed the standard discretionary long strategy, you would have been better over the two years that it was tracked. This is further evidence that you should not be using leverage products to short the crypto markets as this is a surefire way to get yourself rekt.
❓ What They Invest in ❓
Bitcoin is the most popular with over 56% of the trading volume. It is the most liquid and hence it is the one that most aligns with those quantitative trading strategies that they are so keen to employ. The next most popular is of course ETH however I am surprised to see Litecoin at number three. The trend is also evident for some of the other altcoins on the highly traded list. For example, Aave was traded with higher frequency than the likes of ADA despite having almost a 10th of the market cap. Something else that I find quite illuminating here is the diversification of trading amoung smart contract blockchains (perhaps as ETH 2.0 hedges). You have the likes of DOT, ADA, ATOM & Tezos
⚔️ Shorting & Leverage ⚔️
Over half of the funds surveyed are allowed to short crypto assets. However, only about 30% are actively shorting crypto assets. We can also tie that in with this chart over here which shows how many of these funds are using leverage. 51% of these funds are allowed to take on leverage according to their prospectuses. However, only about half of those that can, decided to do so.
🖥 DeFi Usage 🖥
These hedge funds are also using most of the same Defi tools that we use. These include dex protocols such as 1inch, Uniswap and Sushiswap. They are also involed in yield farming activity. This is likely to pick up considerably as there are a number of large traditional finance hedge funds that appear to be keen on the crypto space.
📜 Disclaimer 📜
The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial legal or tax advice. The content of this video is solely the opinions of the speaker who is not a licensed financial advisor or registered investment advisor. Trading Forex, cryptocurrencies and CFDs poses considerable risk of loss. The speaker does not guarantee any particular outcome.