This article is compiled and organized by BlockWeeks
In April, crypto and digital asset funds recorded modest gains, continuing the strong performance since the start of the year.VisionTrackCrypto Hedge Fund Composite Index (VisionTrack Crypto Hedge Fund Composite Index) rose 0.16% in April, bringing the year-to-date cumulative return to 26.00%. Over the same period, Bitcoin rose 2.72%, expanding its year-to-date gain to 76.54%; the Bloomberg Galaxy Crypto Index rose 1.81%, and Ethereum rose 2.72%.
All Strategy Indices Underperform Bitcoin, Fundamental Strategy Remains the Year-to-Date Winner
As of the end of April and year-to-date, all sub-category indices still underperformed Bitcoin, although Fundamental strategy funds have posted considerable gains since the start of the year. The VisionTrack Fundamental Index rose 6.41% in March, then rose another 0.56% in April, bringing its year-to-date performance to 47.71%.
The Quant Directional Index had a lackluster start to the year, rising 5.39% in March, falling 0.30% in April, and posting a year-to-date return of 16.37%. The Market Neutral Index rose 1.19% in March and 0.51% in April, for a year-to-date cumulative gain of 5.80%.
Price Recovery Cannot Mask Liquidity Woes
Despite rising prices for leading crypto assets, liquidity remains a challenge for market participants. For most of April, the 7-day moving average of daily spot exchange trading volume hovered at or below a total of $20 billion. According to Coinbase's Q1 2023 investor letter, its institutional trading volume totaled $124 billion, the lowest level in the past five quarters. The letter also estimated that 75% of U.S. spot market trading volume in the first quarter came from fiat-to-crypto trading pairs.
Against the backdrop of trading volumes at historic lows in recent years, crypto hedge funds also face the challenge of the absence of a crypto banking settlement layer. Ram Ahluwalia recently discussed this issue specifically on Twitter, the gist being: this problem originally seemed to have been solved by SEN and Signet; market makers rely on banks to meet OFAC-issued sanctions screening compliance requirements, and once there are no banks, market makers must bear counterparty risk and settlement risk themselves.
Market Makers Retreat, Offshoring Becomes a Trend
Recent developments and persistent uncertainty have prompted many market makers and funds to move toward setting up offshore operations. Most notably, Jane Street and Jump Crypto signaled in early May that they were exiting digital asset market-making. In recent weeks, Gemini and Coinbase successively announced the launch of offshore derivatives platforms, allowing perpetual contracts to be traded in eligible jurisdictions outside the United States; Binance announced its exit from the Canadian market, citing Canada's guidance on stablecoins and restrictions on investors, which make the country's market "no longer viable for Binance at this time."
Meme Coin Frenzy Drives Up On-Chain Activity
While many crypto hedge funds focused their attention on regulatory uncertainty, meme coins gained significant attention, and activity around decentralized exchanges clearly heated up. On May 5, the average Gas price on the Ethereum blockchain reached 155.84 gwei, the highest level since May 2022. Driven by the meme coin boom, Uniswap's weekly decentralized exchange trading volume climbed modestly but remained below the year-to-date high set in mid-March. In addition, Uniswap's daily active unique users surpassed 50,000 in early May, a figure not seen for several quarters.
