Multicoin Capital’s Hedge Fund Lost 91.4% Last Year, Investor Letter Reveals

Multicoin Capital’s hedge fund suffered a significant loss of 91.4% in 2022, according to an investor letter viewed by CoinDesk. The hedge fund’s poor performance was attributed to the tumultuous year for cryptocurrencies, as well as the direct and indirect impact from the collapse of crypto exchange FTX.

The annual investor letter explained that while the fund managed to avoid the catastrophic implosions of LUNA and Three Arrows Capital earlier in the year, it could not escape the explosive revelations about FTX and the subsequent contagion that spread across the market. The letter added that after a remarkable year in 2021, the fund’s performance in 2022 was the worst since its inception.

In a separate letter sent to investors in November 2022, Multicoin disclosed the financial condition of its hedge fund, revealing that the fund had 10% of its assets stuck on FTX, as well as significant exposure to FTT, SOL, and SRM, all tokens that experienced significant sell-offs in November.

Multicoin Capital, led by managing partner Kyle Samani, launched its hedge fund strategy in October 2017, which invests in liquid tokens. The firm also operates three venture capital funds and has invested in the failed exchange FTX.

Despite the massive drawdown, Multicoin’s hedge fund remains up 1,376% net of fees from its inception through 2022. As the broader crypto market rebounded from last year’s lows, the fund reported gains of 100.9% in January 2023, bringing the fund’s performance since its inception to January 2023 to 2,866%.

The 2022 losses of Multicoin’s hedge fund stem from the assets stuck on FTX and holdings in tokens directly impacted by FTX, including the exchange token FTT. In November 2022, the firm quickly created a side pocket for assets impacted by FTX, which included assets stuck on the exchange and those withdrawn just before the collapse. The side pocket also included assets that may be subject to clawbacks by the FTX estate.

To mitigate counterparty risks, Multicoin has taken new steps such as only keeping 48 hours worth of trading assets on an exchange at a time. The firm has also adjusted collateral management practices to reduce the amount of collateral held on exchanges for derivative positions and is onboarding additional custodians to diversify custodial risk.

Multicoin said that it “remains steadfast” in its long-term strategy and “does not attempt to time the market.” A spokesperson for Multicoin Capital declined to comment on the matter.

Investing in cryptocurrencies can be highly volatile and subject to various risks such as market risk, liquidity risk, regulatory risk, and operational risk. Nonetheless, many investors still choose to invest in cryptocurrencies due to its perceived high return potential. It is vital to note that cryptocurrencies should be considered as a high-risk and speculative investment that requires investors to be knowledgeable and informed before investing.

Despite the market fluctuations and the inherent risks of investing in cryptocurrencies, many investors still choose to invest in the sector. The investment philosophy of long-term holding is often recommended by experts to mitigate the risks of the highly volatile market. Investors may also consider diversifying their investment portfolios and seek professional advice to optimize their investment strategies.


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