Multicoin Capital’s hedge fund reports a 91.4% loss in 2022 – here’s what happened
Digital asset investment firm Multicoin Capital lost as much as 91.4% in 2022 as investors rushed for the exits following the catastrophic collapse of FTX.
According to a copy of the firm’s annual investor letter, the hedge fund was hit the hardest 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). The letter read:
“While the fund successfully avoided the catastrophic implosions of LUNA and Three Arrows Capital earlier in the year, we did not avoid the explosive revelations about FTX or the subsequent contagion that spread across the market. After a remarkable year in 2021, our performance in 2022 was the worst since inception.”
Multicoin Capital is one of the largest and oldest investment management companies in the crypto company and it is considered to be a very capable crypto company.
The fund describes itself as “a thesis-driven investment firm that invests in cryptocurrencies, tokens and blockchain companies that are reshaping trillion-dollar markets.”
Led by managing partner Kyle Samani, Multicoin Capital 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.
It’s worth noting that Multicoin’s crypto hedge fund remains up over 1,300% net after fees from inception to 2022 despite the massive decline.
Meanwhile, as the broader crypto market rallied earlier this year, Multicoin reported that the fund gained 100.9% in January 2023, bringing the fund’s year-to-date return to 2,866%.
Multicoin Hit Hard by FTX Implosion
Multicoin’s losses last year stem largely from its indirect exposure to the company through holdings of crypto assets such as FTT, the exchange’s original token, as well as assets stuck on the platform. The firm noted that it quickly created a side pocket (a withdrawal from the main fund) for assets affected by FTX in November 2022.
This included assets stuck on the stock exchange, which is now trapped 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 The side pocket also included Multicoin assets withdrawn from FTX just before the collapse, which the letter says could be subject to repayment by the FTX estate.
Multicoin wrote in the letter that they have taken new steps to “reduce counterparty risk”. The firm plans to keep only 48 hours worth of trading assets on one exchange at a time.
Furthermore, the fund will adjust its security practices to reduce the amount of collateral held on exchanges for derivative positions, and bring on board more custodians to diversify custody risk.
FTX and its group of crypto companies filed for Chapter 11 bankruptcy in early November. Sam Bankman-Fried, the disgraced founder of FTX, was later arrested in the Bahamas after US prosecutors formally filed criminal charges against him. He was eventually extradited to the United States, where he was released from prison after posting a $250 million bond in a New York court.
