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2023 Institutional Crypto Hedge Fund & Venture Report

A lot has changed over the last 12 months, but the industry continues to grow. We’ve tracked, evaluated, and summarized fund activity since 2018 to bring you key institutional takeaways through the course of a vibrant 2021 and an arresting 2022.

Executive Summary

Fresh off an exuberant 2021, the cryptocurrency sector started 2022 with continued enthusiasm. In Q1 2022, Bitcoin traded within range fluctuating around $40k. The total amount raised on a quarterly basis for crypto venture capital reached $13.3b, surpassing its previous historical monthly record in Q4 2021 of $11.0b. In January, non-fungible token (NFT) trading volumes reached $4.8b in USD value and half a million active users on OpenSea, two historical monthly records. By the end of March, it was reported there were 4,832 decentralized autonomous organizations (DAOs) the largest number of DAOs on record. The sector continued to smash through record after record, until it didn’t.

In April, the market faced numerous questions pending U.S. regulation, blockchain infrastructure, scalability, and the institutional adoption of decentralized finance (DeFi). A market once filled with promise and excitement for the future of finance, saw continual challenges month-after-month. Starting in May, TerraUSD/Luna collapsed, then Three Arrows Capital filed for insolvency, Voyager and Celsius filed for bankruptcy, Tornado Cash was sanctioned, and by November FTX filed for bankruptcy exposing Alameda Research’s infamous fraud. The latter half of 2022 was a year of navigating uncertainty in an already choppy market with dwindling retail activity. By year-end nearly $3.1b was hacked in DeFi protocols. Further, it was estimated that some 23,600 employees were let go from companies across the sector. Several hundred fund managers closed shop altogether with tens of billions lost or stolen. According to Galaxy Asset Management, in December, it was estimated nearly 40% of market makers were wiped out after FTX.

Despite agonizing headlines and the ceaselessly dark days of the 2022 crypto winter, the sector prevailed. Volumes, values, and the total amount of funds raised dried up in the second half of the year, most significantly in Q4, yet some fundraising persisted. Hedge fund managers were resilient, venture fund managers deployed less, and institutional demand for actively managed crypto fund strategies continued to be explored.

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