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At the beginning of 2023, a combination of rising interest rates, local bank failures, and recession concerns poured cold water on markets, including cryptocurrencies. And at the end of the year, the price of the most popular cryptocurrency began to soar as investors became more confident that a spot Bitcoin ETF would be approved by regulators.
It’s been a challenging year for Jeff Park, portfolio manager and head of crypto hedge fund Bitwise Multi-Strategy Alpha Fund. “2023 was an anomaly in some ways because the crypto market was pretty dormant with the exception of Bitcoin until the fourth quarter,” Park said. Opportunities for arbitrage and market-making trading strategies were not as good, he added, as crypto markets are typically more dynamic.
But Park said last year was also a good test. When he joined Bitwise in 2022, Park was tasked with creating a crypto fund that would appeal to institutional investors. The only way to do that is to choose managers and strategies that focus on early-stage asset classes and work together to capture upside while minimizing losses, he said. . The company was able to achieve this in its first full year of operation.
The all-weather Alpha Fund has been down for months, but not by much. It never fell more than about 2.5% in a 30-day period and rose 18.8% in 2023, according to customer documents reviewed by the company. Institutional investor. Last year, Alpha Fund’s annual volatility was 14%, while Bitcoin’s volatility hovered around 40%.
Alpha Fund performed better in 2023 than most hedge funds, but not as well as other crypto-focused funds. The HFRI Fund Weighted Composite Index, a measure of returns for the global hedge fund industry, rose 7.5% last year. on the other hand, HFR Cryptocurrency Index rises 65.8%. (HFR’s crypto strategy is not included in the industry-wide index due to the volatility of the young asset class.) The S&P 500 index rose 24.2% in 2023.
“The way I see the downside and upside is exactly what I want. This asymmetrical uptake will look different in this case. [fund] Otherwise, just buying Bitcoin is just a ‘long beta’,” Park said.
All of Alpha Fund’s strategies were up in 2023, with a variety of strategies including event-driven, directional, liquid venture, arbitrage, yield and quantitative, according to client documents. Bitwise does not disclose details of the hedge funds in which it invests, but some of the hedge funds are managed by professionals who previously worked at well-known traditional funds. Including Citadel and Bridgewater.
Alpha Fund is still small, with just over $25 million under management. Almost all investors are family offices, other wealthy individuals, and crypto institutions. Park said the fund has been in talks with major pensions and endowments, but no companies have made an investment yet. The manager knows the investor group well. Prior to joining Bitwise, he traded exotic equity derivatives at Morgan Stanley and worked at Harvard Management Company and the multi-strategy hedge fund Corbin Capital Partners.
In January, a few days after an incident, Erroneous announcement in X, the SEC approved a Bitcoin ETF, a moment Park called the “IPO of Bitcoin” and a tailwind for the asset class and Alpha Fund. ETFs create new financial products and opportunities, and create inefficiencies that hedge funds exploit. For example, asset managers have already submitted requests to offer leveraged Bitcoin ETFs and Bitcoin options ETFs.
Investors are likely to underestimate the impact that spot bitcoin and related ETFs will have on the market, Park explained. Capital-efficient leverage instruments have new meaning for arbitrage trading.
“All of these financializations are actually very good because they create unique trading opportunities that can channel the fungibility of each of these instruments into the underlying market. “We’ve always talked about it being volatility, long volume and long value,” Park said. “Those are all true, but what I call financialization is also a long one. [and] Increased financialization is a very good thing for Alpha. ”
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