Multicoin Capital’s Hedge Fund Lost 91.4% In 2022

Crypto hedge fund Multicoin Capital has reportedly suffered a massive loss of 91.4% in 2022, according to a copy of the firm’s annual investor letter viewed by CoinDesk. The letter attributed the loss to the turbulent year for cryptocurrencies and the direct and indirect impact from the collapse of crypto exchange FTX. Multicoin’s hedge fund strategy, which invests in liquid tokens, was launched in October 2017 and despite the significant drawdown, it remains up 1,376% net of fees from its inception through 2022.


Fund Assets Stuck on FTX

Multicoin revealed in a separate letter to investors last November that the fund had 10% of its assets stuck on FTX, as well as significant exposure to FTT, SOL, and SRM. In response, the firm quickly created a side pocket for assets impacted by FTX, including assets stuck on the exchange, which are now ensnared in bankruptcy proceedings. The side pocket also included Multicoin assets withdrawn from FTX just prior to the collapse, which the letter says may be subject to clawbacks by the FTX estate.


Mitigate Counterparty Risks

Multicoin’s managing partner, Kyle Samani, said in the letter that the fund successfully avoided the catastrophic implosions of LUNA and Three Arrows Capital earlier in the year, but didn’t avoid the explosive revelations about FTX nor the subsequent contagion that spread across the market. Despite the setback, the firm reported that the fund gained 100.9% in January 2023, bringing the fund’s inception-to-January return to 2,866%.

The letter also detailed that Multicoin has taken new steps to mitigate counterparty risks, including only keeping 48 hours worth of trading assets on an exchange at a time, adjusting collateral management practices to reduce the amount of collateral held on exchanges for derivatives positions, and onboarding with additional custodians to diversify custodial risk.