Earlier this year, I highlighted the dire state of crypto liquid funds, deep in the red after a challenging Q1. Despite a market rebound since then, some funds have failed to recover. Notably, Asymmetric’s Liquid Alpha Fund has closed following a reported 78% loss year to date. So, what’s causing this continued underperformance?
Joe McCann, the founder, CEO, and CIO of Asymmetric, didn’t provide a clear explanation for the fund’s closure. He stated this week that the fund was designed for “highly volatile markets,” a strategy that no longer benefits its Limited Partners (LPs). As a result, the firm is transitioning away from liquid trading and offering its investors the option to redeem their investments or switch to a specific illiquid investment. Despite this setback, the company’s other ventures remain operational.
Arthur Cheong, founder, CEO, and CIO of DeFiance Capital, shed some light on possible reasons behind the massive losses. These included highly leveraged positions in volatile tokens, trading in meme coins such as BONK and MOTHER, and a potentially ill-conceived options strategy. DeFiance’s flagship liquid fund, however, rebounded in Q2, posting “significant positive gains” and recovering much of its Q1 losses.
As the market structure evolves, Rajiv Patel-O’Connor, partner at Framework Ventures, believes that the shift from speculative, memecoin-led investments to more fundamental-driven investing may have caught some funds by surprise. He adds that funds which bet heavily against Ethereum may still be stuck with underperforming assets.
Another critical factor is asset selection and timing. Ryan Watkins, the founder of Syncracy Capital, suggests that many funds sold low, bought back late, or shorted the bottom. Further, those that maintained a long position often chose the wrong tokens.
In conclusion, liquid funds are grappling with one of their most challenging years, even in a bullish market. To succeed in today’s liquid crypto landscape, quality still matters, but the bar is set significantly higher. Fund managers require quick reflexes, disciplined sizing, robust liquidity, and risk management to survive and thrive.
