Digital asset investment firm Multicoin Capital lost as much as 91.4% in 2022 as investors rushed to exit the market following the catastrophic collapse of FTX.
According to a copy of the annual letter firm for investors, the hedge fund was the hardest hit after the FTX collapse, despite managing to ride out the meltdown of algorithmic stablecoin Terra and the collapse of fellow crypto hedge fund Three Arrows Capital (3AC). The letter read:
“While the fund successfully avoided the catastrophic collapses of LUNA and Three Arrows Capital earlier in the year, we did not escape the explosive revelations about FTX and the subsequent contagion that spread through the market. After an outstanding 2021, our performance in 2022 was the worst since inception.”
Multicoin Capital is one of the largest and oldest crypto investment management firms and is considered by many to be a very insightful crypto investment management firm.
The fund describes itself as “a thesis-driven investment firm that invests in trillion-dollar market-changing cryptocurrency, token and blockchain companies.”
In October 2017, Multicoin Capital, led by managing partner Kyle Samani, launched its hedge fund strategy that invests in liquid tokens. The firm also manages three venture capital funds and invested in the now-defunct FTX exchange.
It is worth noting that the crypto hedge fund Multicoin continues to grow more than 1,300% without fees from inception to 2022, despite a significant reduction.
Meanwhile, as the broader cryptocurrency market rebounded earlier this year, Multicoin reported that the fund returned 100.9% in January 2023, bringing the fund’s return from inception to January to 2,866%.
Multicoins were hit hard by the FTX Implosion
Multicoin’s losses last year were mainly due to indirect exposure to the company through holdings of crypto assets such as FTT, the exchange’s native token, as well as assets stuck on the platform. The firm said in November 2022, it quickly created a side pocket (main fund allocation) for FTX-affected assets.
This included assets stuck in the stock market that are now trapped in bankruptcy proceedings. The side pocket also included Multicoin assets withdrawn from FTX just before the crash, which the letter said could be claimed by FTX.
Multicoin wrote in the letter that it has taken new measures to “mitigate counterparty risks.” The firm plans to keep only 48 hours of trading assets on the exchange at a time.
In addition, the fund will adjust collateral management practices to reduce the amount of collateral held on exchanges for derivative positions and engage additional custodians to diversify custodial risk.
In early November, FTX and its group of crypto companies filed for Chapter 11 bankruptcy. Sam Bankman-Fried, the disgraced founder of FTX, was later arrested in the Bahamas after US Attorneys 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.
