While we have done our usual database update (1946 strategies out of which 507 CTAs for April) we thought it would be prudent to focus our comment on Crypto Strategies. As most investors in the Crypto Universe have noted, the Terra USD (UST) Stable Coin lost its peg during the week. UST is/was an algorithmic stable coin with a predefined way of maintaining the peg. However, the mechanism to maintain the peg may have been exploited in what can be described as bank-run.
This event has been compared to the events surrounding the crash of Lehman Brothers in Sep-2008, which resulted in the “Reserve Fund“, a money market fund, “breaking the buck” and causing massive flows of capital, increased volatility, and a deeper selloff in equity markets.
NilssonHedge is currently calculating two performance barometers for Crypto Hedge Fund managers, one daily and one monthly, both with data from January 2019. For obvious reasons the monthly index does not yet contain any information relating to the UST de-pegging. We expect that the May return will be negatively impacted by the Crypto-Crash.
Moreover, a few managers have made comments on the situation for Luna and UST, but these managers have not had any significant exposure to either coin.
Our daily index has shown large negative results, but not outside expectations based on for instance volatility. In terms of the current drawdown, we note that it is slightly more than 60%. During the last three and half years, we have seen three drawdowns larger than 50%. However, this one is the largest one. From here, the average crypto manager needs to recover 150% to make it back to the highs that were observed in mid-2021.
What is more concerning is that a large number of managers have simply stopped trading. Since the start of the year, some 185 daily crypto-strategies have shut (36% of the managers). If these managers will re-engage with new capital and confidence at some point in time is a relevant question, which will likely have an impact on the performance of a flow-driven asset class such as cryptos. We made a similar observation in a post in February.
While these strategies are largely retail-oriented in nature, one observation is that the investor base for Crypto seems to be changing with less retail oomph. Maybe a new Crypto Winter has arrived. You can find our Crypto Database here or click here to access all of our databases.
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