Multicoin Capital’s hedge fund lost 91.4% last year, investor letter reveals

Multicoin Capital’s hedge fund lost 91.4% in 2022, according to a copy of the firm’s annual investor letter seen by CoinDesk.

The letter attributed last year’s decline to a turbulent year for cryptocurrencies, as well as the direct and indirect impact of the collapse of the crypto exchange FTX.

“While the fund successfully avoided the catastrophic implosions of LUNA and Three Arrows Capital earlier this year, we did not avoid the explosive revelations about FTX or the subsequent contagion that spread across the market,” the letter said. “After a remarkable year in 2021, our performance in 2022 was the worst since inception.”

In a separate letter to investors last November, Multicoin detailed the financial state of its hedge fund, revealing that the fund had 10% of its assets tied up in FTX, as well as significant exposure to FTT, SOL and SRM, all tokens that saw steep sales last November.

Multicoin Capital, led by managing partner Kyle Samani, launched its hedge fund strategy in October 2017, which invests in floating tokens. The firm also runs three venture capital funds, and has invested in the now bankrupt stock exchange FTX.

Despite the massive decline, Multicoin’s hedge fund is still up 1,376% net of fees from inception to 2022. As the broader crypto market recovered from last year’s lows, Multicoin reported that the fund gained 100.9% in January 2023, which brought the fund’s start to -January back to 2.866%.

Multicoin’s losses in 2022 stem from the assets stuck on FTX and holdings in tokens directly affected by FTX, including the exchange token FTT. According to the letter, in November 2022, the firm quickly created a side pocket (a distribution of the main fund) for assets affected by FTX. This included assets stuck on the stock exchange, which are now caught up in bankruptcy proceedings. The side pocket also included Multicoin assets withdrawn from FTX just before the collapse, which the letter says could be subject to repayment by the FTX estate.

The letter also describes that Multicoin has taken new steps to “reduce counterparty risk.” The firm will only hold 48 hours worth of trading assets on one exchange at a time, adjusted security practices to reduce the amount of collateral held on exchanges for derivatives positions, and is on board with multiple custodians to diversify custody risk.

Multicoin says it “remains steadfast” in its long-term strategy and “is not trying to time the market.”

A spokesperson for Multicoin Capital declined to comment.