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Digital asset investment firm Multicoin Capital saw losses of up to 91.4% in 2022 as investors rushed for the exits following the disastrous collapse of FTX.
According to a copy of the firm’s annual investor LetterHedge funds were among the worst hit after the collapse of FTX, despite managing to weather the collapse of Terra’s algorithmic stablecoin and the failure of another crypto hedge fund Three Arrows Capital (3AC). Letter read:
“While the fund successfully dodged the devastating outbursts of LUNA and Three Arrows Capital at the start of the year, we were not spared the explosive revelations about FTX nor the subsequent contagion that spread across the market. After a remarkable year in 2021, our performance in 2022 was our worst since inception.
Multicoin Capital is one of the largest and oldest investment management firms in the crypto company, and is widely regarded as a very astute encryption investment management firm.
The fund describes itself as “a thesis-driven investment firm that invests in cryptocurrency, token and blockchain companies reshaping trillion-dollar markets.”
Led by Managing Partner Kyle Samani, Multicoin Capital launched its hedge fund strategy in October 2017, which invests in Liquid Tokens. The firm also operates three venture capital funds and has invested in the now-defunct exchange FTX.
It is worth noting that despite the massive drawdown, the crypto hedge fund of Multicoin has maintained over 1,300% net fees since its inception until 2022.
Meanwhile, following the broader crypto market rally earlier this year, MultiCoin reported that the fund gained 100.9% in January 2023, bringing the fund’s inception to January returns of 2,866%.
Multicoin Hit Hard by FTX Implosion
Multicoin’s losses last year largely came from the company’s indirect exposure to crypto assets such as FTT, the exchange’s native token, as well as assets stuck on the platform. The firm noted that it quickly created a side pocket (a carve out of core funds) for assets affected by FTX in November 2022.
This included assets stuck on the exchange, which are now stuck in bankruptcy proceedings. The side pocket also contained multicoin assets removed from FTX just before the collapse, which the letter says could be subject to clawbacks by the FTX estate.
Multicoin wrote in the letter that it has taken new steps to “mitigate counterparty risk”. The firm plans to only keep trading assets on the exchange for 48 hours at a time.
In addition, the Fund will adjust collateral management practices to reduce the amount of collateral held on exchanges for derivative positions and is engaging additional custodians to diversify custody risk.
FTX and its group of crypto companies filed for Chapter 11 bankruptcy In early November. Sam Bankman-Fried, disgraced founder of FTX, was arrested later after criminal charges were formally filed against him by US prosecutors in the Bahamas. He was eventually extradited to the US, where he was later released from prison. posting a $250m bond in a New York court.