Nickel Digital Asset Management’s (Nickel) flagship Digital Asset Arbitrage Fund posted strong returns in May, extending year-to-date returns to double digits. That was despite the underlying market going through one of the deepest bitcoin corrections in recent memory.
The fund was up +2.6 per cent in May in the face of bitcoin dropping over 50 per cent from April’s record levels. This month’s profits mostly came from the perpetual swaps, the futures basis and options trading.
The fund extended its streak of all-positive months since its inception 24 months ago, while delivering an industry-leading Sharpe of 4.8. The strong performance in May boosts fund’s year-to-date net returns to +12.9 per cent over the first five months of the year, comfortably outperforming gain of +3.4 per cent for an average hedge funds in HFRX Equity Market Neural Index, the closest benchmark.
The fund is now up +20 per cent on the rolling 12-month basis, well above Nickel’s own conservative return guidance of 8-10 per cent pa.
The fund pursues an absolute return strategy without expressing directionality views on the underlying crypto market. Instead, it exploits market inefficiencies, price dislocations, and harnesses swings of volatility in the crypto market to deliver consistent positive returns within a strictly defined risk management framework.
Anatoly Crachilov, CEO and Founding Partner of Nickel Digital, says: “The arbitrage strategy navigated the recent storm in the crypto markets well, taking advantage of the volatility spike and delivering stronger than usual returns. It is yet another validation of market-neutral investment approach and the results are particularly valuable in the context of one of the strongest selloffs experienced by the underlying bitcoin market in May.”
Michael Hall, CIO and Founding Partner of Nickel Digital, says: “In the midst of the May sell-off, crypto exchanges reported over USD9 billion of auto liquidations of overleveraged positions in a single day. The large falls in crypto valuations seen last month is, in a way, ‘healthy’ as they enable the market to clear excess speculative positions and consolidate before its next phase of gradual expansion. We have seen this pattern time and again across multiple cycles and expect this to remain in place until the market matures and achieves a larger involvement of institutional capital.”
Alek Kloda, Senior PM and Founding Partner of Nickel Digital, adds: “We will continue to see significant swings in valuations of crypto assets hence this space is best suited for professional investors with a long-term view, and who are able to tolerate interim volatility. This volatility can be mitigated either through appropriate sizing or through dedicated market-neutral strategies. Indeed, while such price corrections might have inflicted damage for some investors, for an investment manager running a market-neutral arbitrage strategy, armed with proper risk management systems and resilient trading infrastructure, this level of volatility offer incredible opportunity.”
