New regulations, White House support and billions in institutional capital were meant to drag crypto out of the frontier into the mainstream. Instead, the year laid bare crypto’s unforgiving terrain, even for professionals built to profit from volatility.
Through November, directional funds — designed to profit from large price swings in Bitcoin and other major coins — are down 2.5%, on pace for their worst year since the industry’s 2022 winter, when many fell 30% or more, according to Crypto Insights Group.
Fundamental and altcoin-heavy strategies, where managers take long-term, bottom-up views on blockchain networks and tokens, are down about 23% after sharp drawdowns. Only market-neutral funds, which stay hedged and target small, steady mispricings, have managed meaningful gains, up about 14.4%.
Bitcoin’s early 2025 rally offered plenty of price action, but much of it came in sharp bursts when liquidity was thin. Those quick moves made it difficult for many funds to build or exit positions cleanly.
At the same time, institutional inflows — through ETFs and structured products — reshaped the playing field. Wall Street firms moved deeper into crypto markets, tightening spreads and undercutting once-lucrative arbitrage opportunities. The payoff from classic trades like the spot-futures carry, known as the basis trade, shrank dramatically. What used to be dependable double-digit monthly returns became fleeting or evaporated altogether.“Investors are using structured products with downside protection, which reduces volatility and increases alpha decay,” said Paul Howard, director at market maker Wincent.
Crypto hedge funds remain a fragmented niche. While a few large players manage sizable sums, most are much smaller. Total assets across active, liquid strategies sit between $12 billion and $15 billion, according to Crypto Insights Group, with the typical fund running just around $30 million.
Even before the October crash, many funds were struggling. Altcoins failed to deliver a speculative summer bounce. New token launches gained little traction. Retail demand stayed muted. An index tracking altcoin performance hit its lowest level since the 2020 pandemic crash.
BloombergThen came Oct. 10 — one of the fastest liquidation events in crypto’s brief history. Just days after Bitcoin set a fresh high, Donald Trump’s campaign vow to impose 100% tariffs on Chinese goods triggered a 14% price plunge. Nearly $20 billion of leveraged positions were wiped out in hours.
For Thomas Chladek, managing director at Forteus, the asset-management arm of Numeus, the chaos erupted mid-air. “I was boarding a flight from Asia to Europe,” he said. “I was checking a few managed accounts and mid-flight everything started collapsing.”
This year has been defined by “Trump volatility,” said Yuval Reisman, founder of Atitlan Asset Management. “We’re seeing erratic bursts tied to politics and regulation.”
Directional funds, which take long or short positions based on expected price moves, using either discretionary views or quantitative models, saw much of the year’s progress erased in a single afternoon. Quant models focused on altcoins — already under strain from thin liquidity — suffered what multiple managers called “total wipeouts.”
The damage ran deeper than prices. Cracks appeared in crypto’s infrastructure. Liquidity vanished. Collateral was stranded mid-trade. Risk systems lagged behind. Veterans of FTX and Terra Luna said the episode felt familiar — and all the more jarring in a supposedly safer, more mature market.
“The Trump tweet may have triggered a risk-off mood, but it’s not responsible for an 80% crash in certain coins,” Chladek said. “The issue was mismanagement of collateral that triggered cascading liquidations in a dry market after market makers pulled out.”
BloombergAltcoin mean-reversion strategies — which bet that short-term price deviations will ease — were hit hardest. During the October crash, dozens of tokens plunged 40% or more in hours, overwhelming these models.
“We had relatively modest exposure to these strategies, and we have since entirely exited those overly dependent on altcoin order-book depth,” said Kacper Szafran, founder of M-Squared, a Malta-based multi-manager fund under the Monterra umbrella.
M-Squared fell 3.5% in October — its worst month since November 2022 and worst ever since opening to external capital earlier this year — but recovered to post a 1.6% gain last month.
Market-neutral funds weathered the storm better, finishing October up about 2%. But even here, there are limits. These approaches require precise controls, sophisticated infrastructure, and constant oversight — expensive ingredients that don’t scale easily.
“Those who were ready — with collateral well allocated across exchanges and systems in place — were able to generate 1% to 3% of gross returns in less than an hour,” said Bohumil Vosalik, chief executive of BVI-domiciled 319 Capital. His fund posted a 1.5% gain in October and 0.4% in November, taking year-to-date net returns to about 12.2%.
The crash reinforced how slowly crypto’s plumbing has matured. Trading connectivity broke down, market makers pulled back, and order-routing systems failed. With no circuit breakers or central clearing, the damage compounded.
“Overall, we definitely see lower liquidity and higher volatility post Oct. 10,” said Peter Kosa, head of growth at Sigil Fund. Sigil’s Core fund, which focuses on altcoins, is down 6.73% — its worst year since a 61% drop in 2022. Its market-neutral fund ‘Stable’ is up 11.26%.
BloombergBy year-end, many funds had cut back altcoin exposure and pivoted toward decentralized finance, where fragmentation and yields still create openings. DeFi and yield-focused funds are up around 12% — a respectable result in a bruising year — but one still constrained by technical hurdles and limited capacity.
“Some market participants may not re-enter the market with the same force anytime soon,” Szafran said. “This will inevitably reshuffle playbooks.”
