Protocol Ventures LP, a major US cryptocurrency hedge fund, has announced plans to close its business and return cash to investors following the digital asset market crash, according to people familiar with the sources who asked for their identities. remained anonymous.

Protocol Ventures sent notices to investors in late October about the move, the sources revealed. One of the people said the hedge fund expects to complete the closing by the end of the year or the first quarter of 2023.

Investors in Protocol’s fund of hedge funds may have lost as much as 90% over the past year, according to sources.

Protocol Ventures is a crypto hedge fund that invested in companies like BlockTower Capital, Multicoin Capital, Pantera, and Electric Capital, among others. Protocol’s decision to liquidate its business comes amid widespread turmoil in the digital asset sector, which has lost $2 trillion in market value in six months.

In 2021, crypto hedge funds gained massive popularity as the pandemic severely affected the financial markets. As a result, the economic crisis caused investors to adopt cryptocurrencies as haven assets.

However, the outperformance quickly dissipated after central banks raised interest rates globally to fight inflation from earlier this year. The aggressive change sharply tightened financial conditions and reduced appetite for riskier investments.

As a result, a major Singapore-based cryptocurrency hedge fund called Three Arrows Capital (3AC) fell into liquidation in June this year due to the ongoing crypto winter that began harshly in May. The cryptocurrency price crash, which wiped out billions of dollars in the market, hit 3AC significantly and exposed a liquidity crisis at the company.

With a net asset value of $18 billion at its last public statement, 3AC was known for directly taking large and highly leveraged stakes in crypto and cryptocurrency businesses. But the turmoil in the crypto markets wiped out the value of those holdings.

In June, Mike Novogratz, founder and CEO of Galaxy Digital, anticipated that two-thirds of hedge funds that invest in cryptocurrencies would go bankrupt due to the current market turbulence.

Novogratz cited the broader financial market reaction to the removal of stimulus by the US central bank as the reason for the drop in cryptocurrency prices. The executive said the collapse of the TerraUSD stablecoin, in which he and Galaxy were investors, was triggered by broader macroeconomic factors than project failures.

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