Cryptocurrency Hedge Funds

Just Bitcoin-beta plays?

January 2022. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Cryptocurrency hedge funds generated abnormally high and uncorrelated returns since 2014
  • However, the returns can be simply attributed to the performance of Bitcoin
  • Many crypto-beta ETFs & ETPs have been launched, so crypto hedge funds need to move from beta to alpha


Cryptocurrencies have reached politics far quicker than other financial instruments given their use in criminal activities and the potential to destabilize central banks and fiat currencies. In contrast, ETFs have accumulated $10 trillion of assets with minimal interest from politicians.

However, the interest from Washington likely peaked in November 2021 when a group of cryptocurrency investors raised $40 million to buy a copy of the U.S. Constitution. They were outbid by Ken Griffin, the founder of Citadel, a large multi-strategy hedge fund and market maker Citadel Securities.

The interest from hedge funds in cryptocurrencies has also been rising given that alpha on traditional markets has been almost completely arbitraged away. Essentially all classic hedge fund strategies are being deployed in the space, with quantitative ones leading (37% of hedge funds), followed by discretionary long-short (28%), discretionary long-only (20%), and multi-strategy (11%), according to the 3rd Annual Global Crypto Hedge Fund Report 2021 of PWC.

Unfortunately this likely will lead to an erosion of alpha, like in all markets. In this research note, we will evaluate the performance and characteristics of cryptocurrency hedge funds (try Finominal’s Alpha Analyzer for alpha and contribution analysis).


As of the end of 2020, cryptocurrency hedge funds were estimated to manage close to $4 billion according to the PWC survey, which seems low compared to $3 trillion managed by the broad hedge fund industry and $2 trillion of the combined market capitalization of cryptocurrencies (read Quant Strategies in the Cryptocurrency Space).

We use the Eurekahedge Cryptocurrency Hedge Fund index in this