An investor in cryptocurrency hedge funds saw nearly 99% of a $250,000 investment wiped out after his chosen fund collapsed during the market meltdown.
“I don’t really know what happened,” Vlad Matveev told the Financial Times.
Matveev detailed Cryptolab Capital’s explanation in a Medium blog post: the fund took a leveraged position in March, and a lack of liquidity and rejection of sell orders stopped it from pulling out when crypto prices tanked.
Crypto hedge funds lost an average of 26% in March, while traditional hedge funds lost about 8%, the Financial Times said, citing HFR data.
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An investor handed $250,000 to a cryptocurrency hedge fund last summer. His investment shed almost 99% of its value during the coronavirus sell-off in March, he told the Financial Times.
“I don’t really know what happened,” Vlad Matveev told the newspaper. “They said they had a diversified set of strategies.”
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Matveev outlined Cryptolab Capital’s explanation of what happened in a Medium blog post in late March.
The fund’s algorithm plowed an amount equal to three times its managed assets into XBTUSD, a leveraged trading product that allows investors to speculate on the bitcoin-dollar exchange rate, Matveev said, citing the fund’s managers.
When the market plunged, the managers tried to reduce their position but were thwarted by a lack of liquidity and their sell orders being rejected, Matveev continued. The crypto exchange ultimately auto-liquidated all positions on March 12, he added.
Cryptolab Capital didn’t immediately respond to a request for comment from Markets Insider.
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Many crypto funds were caught off guard when bitcoin and other cryptocurrencies tumbled by more than a third in mid-March. The funds lost an average of 26% that month, their second-worst monthly loss since at least 2015, the Financial Times said, citing data from hedge-fund researcher HFR.
“It’s an understatement to say it’s a bloodbath across the board,” Eduoard Hindi, partner at Tyr Capital, told the newspaper.
Crypto funds trailed conventional hedge funds in March, as the latter lost an average of 8.4%, the Financial Times reported.
However, bitcoin and other cryptocurrencies have rallied strongly since then. As a result, crypto funds are up more than 13% this year, the newspaper said, striking a sharp contrast to average losses of almost 7% for the broader hedge-fund industry.