According to a copy of the company’s yearly investor letter that CoinDesk seen, Multicoin Capital’s hedge fund lost 91.4% of its value in 2022.The letter explained that last year’s loss resulted from both direct and indirect effects of the collapse of the cryptocurrency exchange FTX as well as a difficult year for cryptocurrencies.
Despite effectively avoiding the disastrous collapses of LUNA and Three Arrows Capital earlier in the year, the fund “did not avoid the explosive discoveries about FTX nor the ensuing contagion that rippled across the market,” according to the letter. “Our performance in 2022 was the poorest since inception, following a spectacular year in 2021.”
Last November, Multicoin provided specific financial information about the state of its hedge fund in a separate letter to investors, outlining the fact that the fund was heavily exposed to the tokens FTT, SOL, and SRM and that 10% of its assets were trapped on FTX.
Managing partner Kyle Samani of Multicoin Capital introduced its hedge fund strategy, which invests in liquid tokens, in October 2017. Also, the company runs three venture capital funds and owned stock in the now-defunct exchange FTX.
Multicoin’s hedge fund has nonetheless gained 1,376% net of fees since its start through 2022, despite the significant downturn. Multicoin revealed that the fund increased by 100.9% in January 2023, increasing the total return from the fund’s creation to January to 2,866% as the whole crypto market recovered from its lows from the previous year.
The funds stranded on FTX and holdings in tokens directly influenced by FTX, such as the exchange token FTT, are the cause of Multicoin’s 2022 losses. The letter claims that the company swiftly established a side pocket (a carveout of the main fund) in November 2022 for assets affected by FTX. This includes items that were frozen on the exchange and are currently caught up in bankruptcy proceedings. The letter claims that Multicoin assets that were removed from FTX soon before its collapse were also found in the side pocket.
In the letter, Multicoin also describes the measures it has taken to “mitigate counterparty risks.” The company has modified its collateral management procedures to lower the amount of collateral maintained on exchanges for derivatives positions, limited the amount of trading assets it keeps on an exchange to 48 hours at a time, and is onboarding new custodians to diversify custodial risk.
Multicoin claims it “does not attempt to time the market” and “remains consistent” in its long-term approach.
