Crypto hedge funds: a difficult path to riches

Written by Paul Ridley, CEO, Old Street Digital and Simon Davies, CEO, Actua

If you’re lucky enough to be a bright hedge fund portfolio manager with 10 or 20 years of experience, who could blame you for wanting to run your own shop? Now, more than ever, many of these talented investors are being drawn into managing digital assets for understandable reasons. The space is both among the most volatile (the largest coins typically have 70% annualised volatility, smaller tokens even more), the most liquid ($300 Billion daily volume vs U.S. listed equities with c. $500 billion) and Bitcoin has higher risk adjusted returns (Sharpe ratio) than most big name tech stocks like Amazon, Alphabet, Netflix and Meta.

Surely there’s money to be made?

Despite the crypto market’s apparent attractiveness to traders, most crypto hedge funds struggle to get off the ground, let alone make their founders rich. At the start of last year, the average pure-play crypto fund was managing less than $30 million in AUM (assets under management),

and 80% of funds were running less than $50 milli…