Shock Letter to Investors: Multicoin Capital’s Hedge Fund Reports 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 exits after the catastrophic collapse of FTX.

According to a copy of the company’s annual letter to investors, the hedge fund was the hardest hit after the collapse of FTX despite its ability to weather the collapse of Terra’s algorithmic stablecoin and the failure of another fund. crypto speculator Three Arrows Capital (3AC). The letter said:

“Although the fund managed to dodge the catastrophic implosions of LUNA and Three Arrows Capital earlier in the year, we did not avoid the explosive revelations on FTX and the subsequent contagion in the market. After a remarkable 2021, our performance in 2022 was the worst since inception. »

Multicoin Capital is one of the biggest and oldest investment management companies in the crypto business, and it is widely considered to be a very shrewd crypto investment management company.

The fund describes itself as “a thesis-driven investment firm that invests in cryptocurrencies, tokens, 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 company also manages three venture capital funds and has invested in the now bankrupt FTX exchange.

It should be noted that Multicoin’s crypto hedge fund remains up over 1,300% net of fees since its inception through 2022 despite the massive withdrawal.

Meanwhile, as the broader crypto market rebounded earlier this year, Multicoin reported that the fund gained 100.9% in January 2023, bringing the fund’s inception to January yield to 2,866%.

Multicoin hit hard by FTX Implosion

Multicoin’s losses last year largely stemmed from its indirect exposure to the company through holdings of crypto assets like FTT, the exchange’s native token, as well as assets locked on the platform. form. The company noted that it quickly created a side pocket (a main fund exclusion) for assets impacted by FTX in November 2022.

This included assets stuck on the stock exchange, which are now trapped in bankruptcy proceedings. The side pocket also included Multicoin assets taken out of FTX just before the collapse, which the letter said could be subject to recoveries by the FTX domain.

Multicoin wrote in the letter that it has taken further steps to “mitigate counterparty risk.” The company plans to keep only 48 hours of trading assets on an exchange at a time.

In addition, the fund will adjust collateral management practices to reduce the amount of collateral held on exchanges for derivatives positions and is integrating additional 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 $250 million bail in a New York court.