Like most people, I smile when I look at my portfolio today. I yearn for the salad days of low interest rates, quantitative easing, and a market where literally every asset on earth was going in only one direction – up.
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Within cryptocurrency, it is worse again. Bitcoin And Ethereum are down more than 70% from their all-time highs. Terra – a former top 10 coin – literally ceased to exist in May, prompting swarms of people on their nearest computer to Google what the phrase “death spiral” meant.
This week on the Invezz podcast, I spoke to the founder of ZX Square, a crypto-only hedge fund. Absolutely amidst all the chaos, Felix told me how his fund is 100% crypto – or, to be precise, 100% bitcoin and ethereum.
And yet, their performance has been remarkable — they’ve been almost flat over the past year. Despite Ethereum diving to triple the figure from flirting with $5,000, and bitcoin going to the moon a lot before jumping back to Earth, Felix explains how his hedge fund has managed to protect itself.
Through options strategies, ZX Square aims to reduce their volatility to 30%-40%, despite bitcoin’s volatility typically landing between 80%-100%. And while traditional hedge funds benchmark to the S&P 500, ZX Square measures their returns against bitcoin — which they dominate.
We also speak of Three Arrows Capital, the crypto hedge fund that exploded spectacularly in the wake of the Terra crisis. How has ZX Square managed to not only stay afloat, but also 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 likely to get there in the future. Also stay tuned for Felix’s price predictions – always a fun way to end a podcast!
As we continue to move through this grim year for the markets, and with the growing relationship between bitcoin and the stock market (as I wrote about yesterday), it’s really interesting to take a look at some alternative strategies.
ZX Square appears to be content with its 100% BTC/ETH allocation, and through its volatility-reducing options strategy, is crushing the market on a relative basis.
Any crypto investor that is doing well, down less than 50% over the past year, ignore anyone who has seen a flat performance. So why shouldn’t they be happy? If you’re into a hedge fund — or are depressed about continued bearish price action — this could be a fun listen for you.
As always, feel free to reach out with comments.
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