Parataxis Hedge Fund Gains 341% With Bets on Revival in Crypto

Olga Kharif, Bloomberg News

(Bloomberg) -- While most crypto funds trailed the rebound in bellwether Bitcoin last year, the Parataxis Absolute Return Fund beat it handily — one of only a few to do so.

The hedge fund, one of four run by Parataxis Capital Management, clocked a 341% return last year net of fees, said Edward Chin, chief executive officer of the company. That more than doubled the rebound in Bitcoin in 2023.

The fund was overweight Bitcoin during last year’s regional-banking turmoil, when Silicon Valley Bank, Silvergate Bank and Signature Bank failed, bolstering the price of Bitcoin amid worries over the health of the traditional banking system. The fund also invested heavily in Solana, a token that suffered after supporter FTX filed for bankruptcy in late 2022 but surged by more than 900% in 2023.

“Those two positions allowed us to outperform the market,” Chin said. “Being liquid, being focused on those things that were thematically over-sold was the right position.”

Crypto funds on average underperformed last year’s Bitcoin rally, contributing to the demise of roughly one-third of all hedge funds focused on the asset class between May 2022 and December 2023, according to Galaxy Digital’s VisionTrack. Some managers lost their entire fund’s value in the 2022 bankruptcies of crypto companies like FTX, while others saw allocations dwindle. Only 3.9% of managers outperformed Bitcoin in 2023, per VisionTrack’s liquid crypto hedge-fund constituent set with performance reported in US dollars and net of fees.

Parataxis manages more than $100 million, with the Absolute Return fund investing nearly half that amount. The fund, which has a one-year lockup, charges a 2% management fee and a 20% performance fee, according to its prospectus. It has a minimum investment of $100,000 and counts traditional pension funds among its investors. Parataxis also operates a Bitcoin mining business, Parataxis Mining Corp., which has operations across Texas, Oklahoma, Iowa and Canada. The operation is looking to double its capacity by mid-2024, and is talking with bankers about whether to take it public or sell it to an already public miner, Chin said.

This year, the fund continues to hold Solana, as well as tokens such as MakerDAO’s MKR, in hopes that it will benefit if stablecoin regulation is passed in the US this year, Chin said. Other holdings include tokens of newer blockchains Sei, Sui and Aptos. It’s also still overweight Bitcoin, which it believes could reach $200,000 by early 2025, as well as Solana, Chin said. The recently approved US spot-Bitcoin exchange-traded funds and the upcoming halving, which will reduce rewards paid to Bitcoin miners, should help drive up Bitcoin’s price, he said.

“Now that there is a regulated product that’s available out there, it’s going to flow into actively managed hedge funds,” Chin said.