Like most people, when I look my portfolio today I grimace. I long for the salad days of low interest rates, quantitative easing and a market where literally every asset on earth was only going one direction – up.
Within cryptocurrency, it’s worse again. Bitcoin and Ethereum are down over 70% from their all-time highs. Terra – a former top 10 coin – literally ceased to exist in May, sending flocks of people to their nearest computer to google what the phrase “death spiral” meant.
This week on the Invezz podcast, I spoke to the founder of a crypto-only hedge fund, ZX Squared. Squarely in the midst of all the chaos, Felix explained to me how his fund is 100% crypto – or to be exact, 100% Bitcoin and Ethereum.
And yet, their performance has been remarkable – they have been roughly flat over the last year. Despite Ethereum diving down to triple figures from flirting with $5,000, and Bitcoin very much going to the moon before jumping back down to Earth, Felix explains how his hedged fund has managed to protect itself.
Through option strategies, ZX Squared aim to reduce their volatility to 30%-40%, despite Bitcoin’s volatility commonly landing between 80%-100%. And while conventional hedge funds benchmark to the S&P 500, ZX Squared measure their returns against Bitcoin – which they have dominated.
We also talk Three Arrows Capital, the crypto hedge fund which blew up spectacularly in the wake of the Terra crisis. How has ZX Squared managed not only to stay afloat, but to generate these relatively outstanding returns?
Felix also dives into his long-term thesis on Bitcoin, and we discuss how badly it has acted as an inflation hedge to date – yet also the possibility to get there in the future. Stay tuned also for Felix’s price prediction – always a fun way to end a podcast!
As we continue to trudge through this abhorrent year for markets, and with the correlation of Bitcoin and the stock market rising (as I wrote about yesterday), it really is interesting to take a look into some alternate strategies.
ZX Squared seem content with their 100% BTC/ETH allocation, and through their volatility-reducing option strategies, are crushing the market on a relative basis.
Any crypto investor who is down less than 50% over the last year is doing well, never mind one that has witnessed flat performance. In that context, why shouldn’t they be happy? If you’re into hedge funds – or depressed about the constant bearish price action – this one might be a fun listen for you.
As always, feel free to reach out with comments.
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