Bloomberg News reports crypto is witnessing increased hedge fund demands in a trading strategy independent of the directional views related to the market.
Undoubtedly, 2022 has been a challenging year for the crypto industry, with Bitcoin recording a drop of 50%, and other digital assets have plunged by more than $1 trillion as the central banks across the world are tightening the monetary policy to fight inflation. However, funds like BlockTower Capital, which is based in Miami, and Nickel Digital Asset management, which also makes use of the so-called market-neutral strategies, stated positive returns are what they are notching.
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BlockTower Capital’s market-neutral fund, managing more than $100 million, has approximately a 3% return this year. London-based Nickel Digital, with about $300 million in assets under the management, advanced 0.49% in May when Terra’s collapse shook the financial markets and dragged a broad encompassing index of the digital assets down by 25%.
This strategy may not appear attractive when the market is dull when Bitcoin is up by 70%, stated Rahul Rai, the co-head of market neutral at BlockTower and was a former forex trader associated with Morgan Stanley stated, in an interview. But this strategy has been found to stand out in a bear market. He also said that there is a lot of demand from the investors.
The teams behind both the companies include skilled and experienced traders from Wall Street since this strategy was deployed long ago in the equity market. For instance, Citadel of Ken Griffin has booked as much as a 7.5% return with the market-neutral strategy as the US stocks suffered losses of about 9% in April.
Nickel Digital’s CEO and Anatoly Crachilov, the founding partner who had left Goldman Sachs in 2019 to chase crypto, stated that with several trading venues operational 24/7 across the globe, the arbitrage opportunities for trading price differences for the same token are in abundance. It is also a strategy that dates back to the initial stages of crypto trading.
Crachilov anticipates that the annual returns from the financial market’s inability to come down to 8% to 10% over time as crypto matures. His firm posted 2021 a return of about 15%.
Since last year, the market-neutral strategy has grown into a very popular type of trading method, as per an April survey by accounting stalwart PwC. But in 2021, an average return of 37% underperformed the other strategies, including a few long-only ones that took the average gains above the 400% mark.
Bloomberg News reports that Olwyn Alexander, the wealth management and global asset leader at Ireland PwC, revealed that the market neutral fund’s relative performance would stand out in the current environment in contrast to the directional long exposure funds.
