There has never been a better time to allocate money to crypto hedge funds.
It is, according to Chris Solarz, the chief investment manager for digital assets in AMITIS CAPITAL, a company that operates a cryptophocused fund of fund-up fund means a fund that specializes in allocating capital to various money managers.
“This is Golden Age for Crypto Hedge Fund Investing,” said Solarz, who used to be responsible for almost $ 8 billion in awards at investor counseling company Cliffwater, in an interview with Coindesk. “It’s an adaptation of the stars. This beta, this secular headwind … Blockchain as a whole has such potential. At the same time, Money Manager is so scarce that I want to shoot fish in a barrel that can choose the winners.”
Crypto markets are still so new that money managers are able to run the same trading strategies they used 35 years ago in Tradfi, when hedge funds only came up, Solarz said.
Only 127 hedge funds existed back in 1990 and managed approx. $ 39 billion; By 2024, these numbers were Skyrocket for over 10,000 funds managing $ 5 trillion in assets. In other words, the sector became far more competitive – and it became much harder to surpass the market.
Solarz’s thesis is that the crypto sector (which counts about 1,650 hedge funds that control $ 88 billion in assets) are currently 10 times less competitive than traditional markets to the point that money managers are able to dust off and read 20-year strategies that stopped working in tradition for a decade for commodity.
“I meet 20 leaders [in crypto]… 19 out of 20 do not deserve to run money, “Solarz said.” Many of them are young and have never administered money before. They will say ‘We invest in Bitcoin, Ether and Solana.’ And I will say, ‘Well, why do I pay you 20% for it?’ … When I pay 20% to a manager, I don’t want them to give me things that I can just do myself or buy in a ETF form. “
The crypto sector is likely to continue to present asymmetrical opportunities for money managers until the technology is completely integrated into the financial sector, according to Solarz. No one says they work for DOT-COM companies anymore because every business is a DOT-COM company. At one point, people will stop talking about crypto as something separate from the rest of the financial system, so the rationale goes – possibly when Bitcoin catches up with gold in terms of market value that Solarz believes could happen within the next 10 years.
No ALTCOIN season
There are three major categories of funds that Solarz looks at for allocation: Venture funds (which provide capital for startups), fluent directional (funds that are betting on whether the market will go up or down) and fluid market neutral (which earns to make money regardless of market movements).
Looking at floating direction funds, Solarz is more interested in the manager’s process and risk management than specific theses they had to advocate. What is their investment strategy? Is it repeated? How do they think of macroeconomics? Then he plows performance data points in models that determine how much value the manager adds.
“It’s easy for me to avoid the big losers. It’s always hard to choose the winners,” Solarz said. “If something seems fishing or I don’t think they have a real investment process, it’s easy to pass on, but there is always a little luck involved to be the best practitioner every single year.”
This process should be strict because the days when all Cryptocurrencies rise together – the legendary altcoin seasons – are over, or he says. The crypto ecosystem now counts about 40 million tokens, at Solarz’s count, and he expects 99.99% of them to go to zero. “There are only 100 who are worth talking about,” he said.
The Crypto market needs an injection of at least $ 300 billion to maintain current prices over the next three years, Solarz claims because of the massive token locks planned to weigh the 100 top tokens. The size of the floating token market for hedge funds is about $ 30 billion, noted Solarz, and retailers have moved on to Memecoins. In other words, there is currently no one to buy all this supply.
“This is overhang. Therefore, there can not be an altcoin bull market in general for some time,” he said.
Market neutral strategies
Historically, five times more money has gone into Crypto VC funds than in all Crypto Liquid Funds combined, Solarz said, because Venture investment makes it easier to hide Mark-to-Market Tab from investment committees. This dynamic is one of the reasons why amitis sees more options on the fluid side. Solarz has so far allocated capital for 14 funds. Of these, three VCs are four are fluid directional, and seven are fluid market neutral.
“This may be a little glib, but at the institutional level they really do not try to lose money while we try to put together returns at the family office,” Solarz said. “If there is a venture capital that seems incredible … I will consider investing, but the obstacle rate is so much higher if you lock money for 10 years.”
Market -neutral strategies are still very profitable, Solarz said. For example, dealers were able to Arbitrage the award of Cryptocurrencies on South Korean exchanges back in December when President Yoon Suk Yeol declared martial arts and created a regional crisis. South Korean investors sold their assets in panic, but the rest of the world did not, which created differences in price that funds were able to take advantage of.
Another popular strategy involves taking advantage of the financing rates associated with eternal contracts. Institutional investors often map a cryptocurrency while getting exposure to it at the same time; This allows them to remain perfectly marketed neutral while collecting interest on the perps, which can sometimes reach 30% annually. The same strategy is implemented on Spot Bitcoin Exchange-Traded Funds (ETFS) and CME Group Bitcoin Futures.
“That’s what they do in this category they make variations about this, and it’s still very profitable, double -digit returns and consistently,” Solarz said.
