Redefining Market-Neutral Strategies
Strong risk-adjusted returns make the case for digital asset market-neutral funds.
Oct 29, 2024As digital assets continue to mature and institutional inflows reach new heights, investors seek avenues for exposure that mitigate volatility while capturing the upside potential unique to this emerging asset class. Market-neutral funds offer one such solution, standing out in the digital asset space for their capacity to deliver equity-like returns with bond-like volatility—a marked shift from traditional market-neutral strategies.
Record-Breaking Inflows Reflect Growing Institutional Confidence
The growth trajectory of digital assets is undeniable. As of October 2024, fund inflows reached levels more than seven times the combined totals of 2022 and 2023[1], fueled by the advent of trusted platforms and broader market adoption. These inflows highlight a significant shift: investors are increasingly recognizing digital assets as a valuable component of a diversified portfolio. For those wary of the heightened volatility inherent to crypto markets, market-neutral strategies offer a compelling alternative, with a focus on risk-adjusted returns.
Source: CoinShares “2023: Digital Asset Fund Flows Annual Report,” January 3, 2024; and “Digital Asset Fund Flows | September 30, 2024,” (data as of September 27, 2024). Data reflects total net inflows into global digital asset investment products.
Traditional vs. Digital Asset Funds: Not Your Parents’ Market-Neutral
Traditional market-neutral funds aim for stability, prioritizing consistent returns often within the realm of bond-like growth. However, this stability can come at the cost of growth potential, limiting the returns available to investors. Digital asset market-neutral funds, by contrast, have historically provided annualized returns exceeding 20% while maintaining a volatility profile comparable to that of traditional bonds. This balance positions digital asset market-neutral strategies as a powerful tool for investors seeking exposure to the asset class without the risk of volatility that comes with direct investing into digital assets.
Past performance is not indicative of future results. Data as of July 31, 2024, most recent available for VisionTrack indices. Source for BTC/USD and ETH/USD price: Yahoo Finance. Bonds as represented by iShares Core US Aggregate Bond ETF, which seeks to track the Bloomberg US Aggregate Bond Index; Equities as represented by S&P500 TR Index; Market-Neutral Equity Hedge Funds as represented by HFRI EH: Equity Market Neutral Index; Market-Neutral Crypto Hedge Funds as represented by Galaxy VisionTrack Market Neutral Index.
Capturing Upside with Controlled Risk
Akin to traditional hedge funds, the digital asset market offers an array of opportunities. The key is to find the managers whose expertise is to capitalize on inefficiencies unique to digital assets, while remaining insulated from broader market swings. For example, during periods of heightened volatility tied to macroeconomic concerns, market-neutral strategies may show resilience, providing a lower-risk pathway to sustained returns. For Samara Alpha’s diversified market-neutral strategy, this has meant successfully weathering significant market downturns without the performance impact seen across other asset classes.
One of the more attractive aspects of digital asset market-neutral funds is their ability to capture the upside potential of digital assets without bearing the full brunt of drawdowns that can affect crypto investments. This makes them especially appealing for institutional investors looking for exposure to digital assets without taking on excessive risk. This distinction is essential as the digital asset market matures, providing investors with avenues that align with traditional portfolio risk management objectives while leveraging the novel opportunities of this nascent space.
The New “Market-Neutral”
In the ever-evolving landscape of digital assets, market-neutral strategies represent a balanced, lower-risk entry point for investors. Unlike traditional market-neutral funds, which often compromise growth for stability, digital asset market-neutral funds strike a unique balance between risk and return, embodying a new era of alternative investments. As institutional participation continues to grow, market-neutral digital asset strategies exemplify the forward-thinking approach that is reshaping the perception—and potential—of digital asset investments.
[1] Source: CoinShares “2023: Digital Asset Fund Flows Annual Report,” January 3, 2024; and “Digital Asset Fund Flows | September 30, 2024,” (data as of September 27, 2024). Data reflects total net inflows into global digital asset investment products.
