Pantera Capital, a hedge fund that gained attention for returning 25,000 percent over its lifetime through the end of last year, saw the value of its cryptocurrency fund cut nearly in half in March, according to an investor letter Tuesday.
"This was a really rough month for the Digital Asset Fund and the space in general," Joey Krug, co-chief investment officer of Pantera Capital, wrote in a letter to clients Friday reviewed by CNBC. "We're in a market with around 100 percent annualized volatility and this month was the worst month in our model's 27-month history."
The hedge fund highlighted that since Dec. 1, its Digital Asset Fund was only down 3.1 percent net of fees, compared with bitcoin, which was down 37.4 percent in the same time frame. For March alone, though, Pantera's Digital Asset Fund was down 45.7 percent.
"This performance is basically in line with our expectation — given the huge move in the market as a whole," Krug said.
Bitcoin, meanwhile, was down roughly 34 percent from the open March 1 through the close of April 1, according to CoinDesk. The cryptocurrency began that month above $10,000 and began slipping to the $6,000 range after regulatory announcements and selling picked up ahead of tax season.
Bitcoin had a record year in 2017 with the cryptocurrency gaining more than 1,300 percent to almost $20,000 in December. That helped Pantera, which was founded in 2013, return roughly 25,000 percent life to date as of last December. Its Bitcoin Fund is down by more than 50 percent this year but has still returned more than 10,000 percent life to date, according to the letter.
The firm's Digital Asset Fund is down 54.9 percent year to date but is still up 10.3 percent life to date. Pantera's ICO Fund is down more than 50 percent year to date but up 92.7 percent life to date, while its long-term ICO fund is down 1 percent year to date and up 5 percent life to date.
Cryptocurrency trades are taxed as capital gains, and Pantera and other investors have attributed recent price pressure to investors waking up to tax obligations.
"A portion of the selling pressure on the market in general has been unintended tax positions," Dan Morehead, CEO and co-chief investment officer of Pantera Capital, wrote in the letter. "There were $300 billion of capital gains created last year. That could have caused a decent chunk of the sales."
Bitcoin was the top contributor to the fund's negative performance in March. The cryptocurrency is down more than 50 percent year to date and was trading near $6,850 at 2:15 p.m. Tuesday, according to CoinDesk. Ethereum, dash and waves were also among the top negative contributors, Pantera said.
Pantera announced an investment in an Ethereum competitor in the letter Tuesday but said they could not announce the company name yet.
In last month's letter, Morehead, who founded the firm after a career at Goldman Sachs, said his investors would still make money even if bitcoin flops the way Pets.com did in the dot-com era.
"If you had a portfolio of IPOs — one was Pets.com and one was Amazon.com — it doesn't matter what the rest were. You made a great return," Morehead said.
Pantera, which has roughly $724 million in assets under management, also announced the launch of its third blockchain-focused venture fund last month. The fund will focus on peer-to-peer transactions, fintech, artificial intelligence and machine learning.