There has never been a better time to allocate money to cryptographic hedge funds.
It is according to Chris Solarz, the director of investments for digital assets of Friends Capital, a company that manages a fund of funds focused on crypto – which means a fund specializing in capital allowance to various fund managers.
“This is the golden age for the investment of cryptographic coverage funds,” said Solarz, who was responsible for almost $ 8 billion in allowances to the consulting company for investors Cliffwater, in an interview with Coindesk. “It is an alignment of the stars. This beta version, this secular rear wind … The blockchain as a whole has such potential. At the same time, the world of money manager is so rare that I feel like I shoot fish in a barrel able to choose the winners.”
Cryptographic markets are still so new that money managers are able to execute the same trading strategies they had used 35 years ago in Tradfi, while hedge funds were only to emerge, Solarz said.
Only 127 hedge funds existed in 1990, managing around $ 39 billion; By 2024, these figures had skyrocketed more than 10,000 funds managing 5 billions of dollars in assets. In other words, the sector has become much more competitive – and it has become much more difficult to surpass the market.
Solarz’s thesis is that the cryptography sector (which has approximately 1,650 hedge funds managing $ 88 billion in assets) is currently 10 times less competitive than traditional markets, to the point that money managers are able to dust off and reap adapter 20 -year strategies that have stopped working in Tradfi more decades due to the merchant.
“I meet 20 managers [in crypto]… 19 out of 20 do not deserve to direct money, “said Solarz.” Many of them are young and have never managed to make money before. They will say “we invest in Bitcoin, Ether and Solana”. And I will say: “Well, why am I paying you 20% for that?” … When I pay 20% to a manager, I don’t want them to give me things that I can do myself or buy under an ETF form. »»
The crypto sector is likely to continue to present asymmetrical opportunities to fund managers until technology is completely integrated into the financial sector, according to Solarz. Person says they work more for Dot-Com companies, because each company is a Dot-Com company. At one point, people will stop talking about crypto as something separated from the rest of the financial system, so the reasoning goes – perhaps when Bitcoin catches up with gold capitalization, which Solarz thinks could occur over the next 10 years.
No Altcoin season
There are three main categories of funds that Solarz examines for the allowance: venture capital funds (which provides capital to startups), liquid management (funds that bet on the fact that the market will increase or decrease) and the neutral liquid market (which earns to earn money regardless of market movements).
When you are considering liquid directional funds, Solarz is more interested in managing the manager’s processes and risks than specific theses that they can marry. What is their investment strategy? Is it reproducible? How do they think of macroeconomics? Then, it travels the performance data points in models that determine the value of the manager’s value.
“It is easy for me to avoid large losers. It is always difficult to choose the winners,” said Solarz. “If something seems to be ladle or if I don’t think they have a real investment process, it’s easy to pass, but there is always a little luck to be the best interpreter every year.”
This process must be rigorous, because the days when all cryptocurrencies increase together – legendary altcoin seasons – are finished, at least he said. The cryptographic ecosystem now has about 40 million tokens, by the Solarz count, and it expects 99.99% of them to go to zero. “There are only 100 that are worth talking,” he said.
The cryptography market will need an injection of at least $ 300 billion to maintain current prices over the next three years, says Solarz, due to the unlocking of massive tokens which should increase the 100 upper tokens. The size of the liquid tokens market for hedge funds is around $ 30 billion, noted Solarz, and retail merchants have gone to the same. In other words, there is currently no one to buy this whole offer.
“This is overhang. This is why there cannot be a Haussier Altcoin market in general for a while,” he said.
Neutral strategies market
Historically, five times more money has been devoted to Crypto VC funds than in all combined cryptographic liquid funds, said Solarz, because business investment facilitates the hiding place for the implementation of investment committees. This dynamic is one of the reasons why Friends sees more opportunities on the liquid side. Solarz has allocated capital to 14 funds so far. Among these, three are VCs, four are liquid directions and seven are neutral on the liquid market.
“It’s a bit like Glib, perhaps, but at the institutional level, they really try not to lose money, while in the family office, we try to compose yields,” said Solarz. “If there is an opportunity for venture capital that seems incredible … I will plan to invest, but the obstacle rate is so much higher if you lock money for 10 years.”
Neutral market strategies are still very profitable, said Solarz. For example, traders were able to arbitrate the price of cryptocurrencies on the South Korean scholarships in December when President Yoon Suk Yeol declared martial law, creating a regional crisis. South Korean investors have sold their assets in panic, but the rest of the world has not done, creating price disparities that the funds were able to take advantage of.
Another popular strategy is to benefit from the financing rates associated with perpetual contracts. Institutional investors often runs a cryptocurrency while making it a punctual exhibition at the same time; This allows them to remain perfectly neutral on the market while they collect interest on the Perps, which can sometimes reach 30% annualized. This same strategy is deployed on funds (ETF) on Bitcoin Bitcoin exchangers and CME Group Bitcoin Futures.
“This is what they do in this category, they make variations on this subject, and they are always two very profitable and consistently yields,” said Solarz.
