Key Takeaways
- • Multicoin Capital's hedge fund lost 91.4% of its value in 2022, according to a copy of the firm's annual investor letter viewed by CoinDesk, its worst performance since inception in October 2017.
- • The losses were attributed to a turbulent crypto market and the direct and indirect impact of the collapse of FTX, where the fund had about 10% of its assets stuck.
- • In November 2022 Multicoin created a side pocket to isolate FTX-impacted assets, including holdings in FTT, SOL and SRM, some of which may be subject to clawbacks by the FTX estate.
- • Despite the drawdown, the hedge fund remains up 1,376% net of fees from inception through 2022, and gained 100.9% in January 2023, per the letter.
- • Multicoin has adopted new counterparty risk measures, including keeping no more than 48 hours of trading assets on any exchange and onboarding additional custodians.
Summary
Multicoin Capital's hedge fund lost 91.4% of its value in 2022, according to a copy of the firm's annual investor letter viewed by CoinDesk. The letter attributed the decline to a turbulent year for cryptocurrencies and to the direct and indirect effects of the collapse of crypto exchange FTX. The firm said it had avoided the implosions of LUNA and Three Arrows Capital earlier in the year, but not the revelations about FTX or the contagion that followed. "After a remarkable year in 2021, our performance in 2022 was the worst since inception," the letter said.
In a separate November letter, Multicoin disclosed that roughly 10% of the fund's assets were stuck on FTX, with significant exposure to FTT, SOL and SRM, tokens that had steep sell-offs that month. The firm, headed by managing partner Kyle Samani, launched its hedge fund strategy in October 2017 to invest in liquid tokens and also operates three venture capital funds. It has invested in FTX, which is now bankrupt. According to the letter, Multicoin quickly created a side pocket, a carveout of the main fund, for FTX-impacted assets, including those stuck on the exchange and Multicoin assets withdrawn shortly before the collapse, which the letter says may be subject to clawbacks by the FTX estate.
Despite the 2022 drawdown, the hedge fund remains up 1,376% net of fees from inception through 2022. The fund reportedly gained 100.9% in January 2023 as the broader crypto market rebounded from its 2022 lows, bringing its inception-to-January return to 2,866%. The letter also outlines new steps to "mitigate counterparty risks": the firm will hold no more than 48 hours' worth of trading assets on an exchange at a time, has adjusted collateral management for derivatives positions, and is onboarding additional custodians to diversify custodial risk. Multicoin said it "remains steadfast" in its long-term strategy and "does not attempt to time the market." A spokesperson for Multicoin Capital declined to comment.
In a separate November letter, Multicoin disclosed that roughly 10% of the fund's assets were stuck on FTX, with significant exposure to FTT, SOL and SRM, tokens that had steep sell-offs that month. The firm, headed by managing partner Kyle Samani, launched its hedge fund strategy in October 2017 to invest in liquid tokens and also operates three venture capital funds. It has invested in FTX, which is now bankrupt. According to the letter, Multicoin quickly created a side pocket, a carveout of the main fund, for FTX-impacted assets, including those stuck on the exchange and Multicoin assets withdrawn shortly before the collapse, which the letter says may be subject to clawbacks by the FTX estate.
Despite the 2022 drawdown, the hedge fund remains up 1,376% net of fees from inception through 2022. The fund reportedly gained 100.9% in January 2023 as the broader crypto market rebounded from its 2022 lows, bringing its inception-to-January return to 2,866%. The letter also outlines new steps to "mitigate counterparty risks": the firm will hold no more than 48 hours' worth of trading assets on an exchange at a time, has adjusted collateral management for derivatives positions, and is onboarding additional custodians to diversify custodial risk. Multicoin said it "remains steadfast" in its long-term strategy and "does not attempt to time the market." A spokesperson for Multicoin Capital declined to comment.
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