Crypto Hedge Funds Trailed Bitcoin in 2024, but Some Notched Triple-Digit Returns

- During a great year for cryptocurrencies, hedge funds focused on digital assets unsurprisingly did very well, too. It’s just that many didn’t do as well as the industry’s most famous token: Bitcoin.

Crypto hedge funds had a great 2024, but most didn't beat Bitcoin's 120% gain

(Bloomberg) -- During a great year for cryptocurrencies, hedge funds focused on digital assets unsurprisingly did very well, too. It’s just that many didn’t do as well as the industry’s most famous token: Bitcoin.

Last year, a number of crypto hedge funds logged double-digit returns, with the VisionTrack Composite Index, which tracks the performance of 130 crypto-dedicated hedge funds, jumping 40%, according to data provided by Galaxy’s VisionTrack.

But those gains are paltry when compared with the advance notched by Bitcoin, which surged 120% to above $100,000 for the first time.

Many hedge funds bend over backwards to differentiate themselves via proprietary or innovative investment strategies that may not always include buying the largest digital coin, meaning that those that didn’t invest in Bitcoin missed out on its banner returns. But investors looking for crypto exposure also last year gravitated toward easy-to-trade, low-fee exchange-traded funds that hold Bitcoin, which allowed them to gain access to the market without having to buy into higher-charging strategies.

“2024 was a challenging year for a lot of crypto funds because it was a Bitcoin and memecoins year — those were the best assets, and everything else trailed behind,” said David Kalk, founder and chief investment officer of Reflexive Capital, which runs its own hedge fund that invests in Bitcoin, among other investments.

Beating Bitcoin’s performance is challenging for crypto hedge funds because “it’s really hard to time these things,” said David Jeong, CEO of Tread.fi, an algorithmic crypto trading platform for institutional traders. “In the hedge fund world, drawdowns are quite sensitive and so you can’t just always be fully exposed long. And investors have alternative pathways to get exposure to crypto.”

Still, hedge funds focusing on directional and quantitative strategies in the digital-asset industry notched the best average performance last year, based on data from VisionTrack. The VisionTrack Quant Directional Index gained 53.7%, while the VisionTrack Fundamental Index grew 40.4% in the same period. The VisionTrack Market Neutral Index added about 18.5%.

Galaxy Digital’s own Galaxy Liquid Asset Fund was up 76.6% in 2024, according to a person familiar with the performance. A representative of Galaxy declined to comment about the returns because the information was not public.

David Tawil’s ProChain Master Fund, a multi-strategy crypto vehicle he launched in 2018, added roughly 70% last year – after having surged 80% in 2023 – thanks to sizable positions in bigger tokens including Bitcoin.

“We’re trying to get the best risk-adjusted returns and, frankly, in this past year, we clearly came out on top because those large-cap tokens mightily beat the crypto market overall,” said Tawil. “So if you owned altcoins, you did not perform as well.”

Fundamental research and macro funds, which have high conviction in crypto assets based on fundamental research in the token or the blockchain, in general performed well. San Francisco-based Reflexive Capital, which runs a long-biased fundamental crypto hedge fund, was up 106% in net returns in 2024, according to a person familiar with the performance. Reflexive’s Kalk declined to comment about his fund’s performance.

The Tephra Digital Asset Fund LP, run by former Wall Street veterans Ryan Price and Raghav Chopra, rose about 100% in gross returns at the end of December, compared to 41% in the year before, according to the fund’s December letter to investors dated Jan. 6, which was viewed by Bloomberg News. Price and Chopra declined to comment about their fund’s performance.

“It was a volatile year for crypto funds, seeing significant 20-30% drawdowns through spring and summer, but ending the year with a strong run,” Galaxy Research’s team said in an emailed statement. “The distribution of returns was wide, with the laggards not well positioned for the November run-up, and only the top cohort of funds outperforming BTC for the year.”

Most of the gains for the crypto hedge funds came in the last quarter of 2024, according to Galaxy’s data, as president-elect Donald Trump, once a crypto skeptic, turned into the industry’s biggest cheerleader. His victory in the US presidential election has sent Bitcoin and other cryptocurrencies to fresh highs. Adding to Bitcoin’s outstanding year is also the successful launch of exchange-traded funds in the US that invest in Bitcoin directly. BlackRock’s Bitcoin ETF,