19Jun 2018

Analysing Crypto Fund Returns

by Tim Johnston

A common question we receive at Apollo is what return can investors expect from investing in the Fund. It is an impossible question to answer. Yet, while the disclaimer “Past performance is not a reliable indicator of future performance” is suitable, it is interesting to examine past returns from crypto funds. Such analysis doesn’t necessarily answer the previous question, but it does offer insight into the range of possible returns and volatility for which investors should be prepared.

At Apollo Capital, we undertook this research by examining the returns of the average crypto hedge fund, made available by Eurekahedge. Eurekahedge maintains a database of over 30,000 hedge funds, including crypto hedge funds. The Eurekahedge index provided 58 monthly data points from June 2013 to April 2018. The data relates to the average performance of crypto funds monitored by Eurekahedge. For ease of reference, we can consider this data to represent the average crypto fund return.

From analysing the data, we can extract results like Average Returns and the Largest Monthly Return. A deeper dive reveals even more insightful information like the Average Return in Up Months and Average Return in Down Months.

The Return for the period was 21,710%, which equates to a compound annual return of 304%.

The Mean Monthly Return from June 2013 to April 2018 was 16.1%. The Median Monthly Return was 7.6%. The difference between the Mean and Median return can be explained by a few bumper months which dragged the Mean return up.

The Largest Monthly Return was 405.3%, recorded in November 2013.

The Largest Monthly Drawdown was -29.9% in March 2018.

There were 36 Up Months compared to 22 Down Months.

The Average Return in Up Months was 33.9% and the Average Return in Down Months was -12.9%.

The lowest return in an Up Month was 2.0% and the highest return in a Down Month was -1.4%.

Crypto Fund Return Analysis.png

We also charted a histogram of the returns.

Average crypto fund returns.png

We can see that most returns fell within the range of -20% to +30%. It is easy to observe this without stopping to reflect. A -15% return in a given month has not been uncommon.

On the positive side, we can see that large returns have been frequent. There were a total of 5 months that returned greater than 50% for the month. Returns of +30%, +40% and greater have not been uncommon.

Returns that are common in crypto would be classed as extreme in nearly every other asset class. We could imagine the mayhem that would follow a monthly return of -15% in global equities. The same return in crypto is just another month. We believe the reason for this is clear – crypto is a young asset class and will likely continue to be volatile as it matures. We believe volatility will settle as institutional money enters the space.

For us, the most important lesson is that crypto investors need to be prepared. Returns that can otherwise be classed as extreme are not uncommon in crypto and most importantly, should not come as a surprise to investors.

The Apollo Capital Fund has been set up with a philosophy of long term investing. We believe that in crypto, and arguably other asset classes, the largest returns are had over the long term. To some extent, we are indifferent to the monthly volatility. We believe patient investors with an understanding of the investment thesis and an understanding of the expected volatility of returns will be rewarded.

Tim Johnston

Tim is the Managing Director at Apollo Crypto. He has substantial expertise in both traditional financial services and technology investing. In financial investing, he worked at DMP Asset Management, a boutique Australian Equities Fund Manager, and was part of the investment team that managed a $33 billion super fund. On the technology side, Tim has worked as a venture capital Associate at Dominet Venture Partners and has been active in crypto markets for over four years. Tim is a CFA charterholder.