An investor document obtained by CoinDesk charts the dramatic ups and downs of the first four years of Polychain Capital’s cryptocurrency hedge fund, offering an exhaustive look at the performance of one of the sector’s top investment firms.

Yearly returns jumped from a 2.7 percent loss in 2016 to a 2,278.8 percent gain in 2017, according to the document, which accounted for returns up to November of last year. They then nosedived for a 60.4 percent loss in 2018, and surged to a 56.1 percent gain in 2019.

The roller-coaster changes are emblematic of the wild swings familiar to crypto investors small and large. At the same time, the hedge fund’s performance altogether flies in the face of common wisdom and regular markets. Investors who kept money over the hedge fund’s lifetime would have netted 1,332.3 percent, according to the document, raising the possibility that a longer outlook may offset incremental risks. 

According to the Bloomberg All Hedge Fund Index, non-cryptocurrency hedge funds overall returned losses of 5.9 percent in 2018 and respective gains of 4.0 percent, 9.2 percent and 9.0 percent in 2016, 2017 and 2019. As a benchmark, leading hedge funds not belonging to the cryptocurrency space gain 15 percent to 35 percent over their lifetimes. 

Polychain Capital declined to comment. Whether returns are realized depends on when Polychain Capital’s investors – which include distinguished venture capital firms Andreessen-Horowitz, Founders Fund, Sequoia Capital and Union Square Ventures – deposit and withdraw their funds.

Polychain Capital’s hedge fund lock-up period is at least six months, a time horizon that yields wildly conflicting snapshots due to monthly volatility and spells danger for short-term investors who run on lower liquidity.

In a tabulation of 39 months of activity beginning in September 2016, the fund's return curve climbed for one of four months in 2016, 10 of 12 months in 2017, three of 12 months in 2018 and six of 11 months in 2019. The 19 negatively moving months were clustered in the last quarter of every year, and appeared in the first two quarters of 2018 and 2019.

On average, returns rose 7.1 percent on a monthly basis. The best six-month stretch gained 529.5 percent from January to June 2017, compared to 47.6 percent lost in the worst six-month run from July to December 2018, by CoinDesk's calculations.

Matt Perona, Polychain Capital’s COO and CFO, is the former chief financial officer of Criterion Capital, a shuttered equity hedge fund that owned deprecated social media site Bebo. Ex-Tiger Legatus hedge fund COO Joe Eagan is Polychain Capital’s president.

Olaf Carlson-Wee, Polychain Capital’s chief investment officer, founded the cryptocurrency investment firm in 2016. The hedge fund is Polychain Capital’s first fund and invests in parallel with a venture capital arm. 

Polychain Capital started raising $200 million for a second venture fund this year. March 2019 filings with the U.S. Securities and Exchange Commission (SEC) reported $595.1 million in aggregate Polychain Capital holdings, including $175 million raised for the first venture fund in 2018.

According to an accompanying investor deck, more than 20 cryptocurrency assets average $20 million positions each out of the $550 million in assets the hedge fund says it controlled in the fourth quarter last year. 

Half of the crypto assets are liquid coins trading on cryptocurrency exchanges, the deck says, and half are illiquid coins that were sold through digital token sales structured under a Simple Agreement for Future Tokens (SAFT).

A SAFT is an investment contract that stipulates that a digital token is a security and freezes redemption until the token technology – ordinarily a blockchain network or a computing protocol – becomes usable.

Though viewed as a regulatory concession by investors and token issuers, a SAFT is not officially recognized as a valid legal framework by the SEC, the government agency that authorizes offerings of securities.