Crypto funds are hurting. Badly. We’re talking losses up to 70% this year, a figure usually whispered about in back rooms and shared only with the people writing the checks. The easy money is gone, and suddenly, everyone’s a fundamentalist. It’s a shift, and a pretty dramatic one.
- Many crypto funds are experiencing significant losses in 2025, leading to a shift towards fundamental analysis and value-based investing.
- Investors are increasingly seeking exposure to riskier altcoins beyond Bitcoin and Ether, but Bitcoin remains a key benchmark for fund performance.
- Funds are moving away from obscure tokens and focusing on assets with real-world use, cash flow, and value accrual, indicating a flight to quality.
The start of 2025 looked promising, even strong. Then tariffs happened, macro worries piled up, and the whole altcoin market started to…well, crumble. Bitcoin’s down around 10%, Solana’s taken a 30% hit, and Ether’s staring at a 50% loss. Trying to find a safe harbor in that storm? Good luck, says Rob Hadick of Dragonfly. It’s been a rough ride, to put it mildly.
A lot of these funds went all-in on Solana last year. That bet? Not paying off right now, according to Jack Platts of Hypersphere Ventures. It’s a reminder that even the hottest tokens can cool down, and quickly. It’s a bit like betting the farm on a horse that stumbles at the first fence.
There’s a weird dynamic at play, too. With Bitcoin now accessible through ETFs, investors are often telling fund managers, “Look, we don’t *need* you to buy Bitcoin. We can do that ourselves.” They want exposure to things beyond Bitcoin, beyond even Ether. They want the stuff that’s a little riskier, a little more…interesting.
But Bitcoin keeps looming large, even when it shouldn’t. It’s the default benchmark for measuring fund performance, which some investors think is ridiculous. Ryan Watkins of Syncracy Capital puts it bluntly: “No one benchmarks equity returns to gold, so why are we doing it with crypto?” He sees a clear split: Bitcoin as digital gold, and everything else as, well, everything else. And those two can succeed independently.
Not all funds are in the same boat. Directional strategies – basically, betting on prices going up or down – have taken the biggest beating, especially those loaded with altcoins. Market-neutral and delta-neutral strategies, focused on arbitrage and low-risk trades, are holding up better. Platts says he’s seen some market-neutral funds consistently making 1-2% a month. Steady, if not spectacular.
From Chasing Hype to Finding Value
The game has changed. Funds are ditching the long-tail bets – those obscure tokens with little real-world use – and focusing on fundamentals: cash flow, actual usage, and whether a token actually accrues value. It’s a flight to quality, and it’s happening now.
The first quarter’s pain has forced a rethink. Investors are narrowing their focus, concentrating on fewer, stronger assets. “We’re taking higher conviction bets, less investments,” says Platts. A portfolio of 20 altcoins? Underperforming. A portfolio of six to ten? That’s where the smart money is going. Some are even looking at publicly traded companies with crypto exposure, like Janover, which is aiming to be the “MicroStrategy of Solana.”
Martijn van Veen of M11 Funds believes investors are starting to position themselves to buy “quality tokens” that can be valued like traditional stocks. He thinks regulatory clarity, especially in the US, will accelerate this trend. An altcoin season? Premature to predict. But a flight to quality? Definitely unfolding. M11 is even launching a second liquid vehicle, the M11 Crypto Core+ Fund, to capitalize on this shift.
DeFiance Capital is also focusing on tokens with “actual value accrual and fundamentals,” according to founder Arthur Cheong. DeFi and a select few Layer 1 tokens remain in focus, but the days of blindly chasing hype are over. It’s about finding projects that are actually building something useful.
Sam Lehman of Symbolic Capital points to recent investments by a16z crypto and 1kx in LayerZero and Layer3 as evidence of this trend. The old VC playbook – investing early and flipping tokens quickly – is becoming less viable. Lockups are longer, and real business building is required. It’s a more mature market, and that’s not necessarily a bad thing.
Hypersphere’s fifth venture fund has the flexibility to go 100% liquid if needed, Platts says. He believes funds with flexible mandates are best positioned to capitalize on “mini-cycles” in sectors like AI agents. Adaptability is key.
Ultimately, the liquid side of crypto is evolving and expanding. Watkins notes that venture fund returns have been weaker than liquid fund returns, and deal quality is down. The liquid market is simply more attractive right now. “There’s simply not enough attractive opportunities in private markets,” he says.
Van Veen points out that most crypto allocations are still venture-heavy, but that’s changing. And if crypto follows the path of traditional finance, the direction is clear. “In traditional finance, hedge funds are 10x larger than venture funds,” says Zaheer Ebtikar of Split Capital. That may be where the crypto liquid fund industry is headed. It’s a long road, but the shift is underway.