"Smart money" has also been "harvested" in the coin circle this year.

In 2025, becoming a cryptocurrency hedge fund has been the most difficult year since the market crash in 2022, as policies and institutional funds have not brought about a breakthrough for the industry as a whole, but instead highlighted the fragility of the market structure. Data shows that as of November, directional funds have fallen by 2.5% this year, marking the worst performance since 2022. According to Crypto Insights Group statistics, strategy funds focusing on fundamentals and altcoins have seen deeper declines, with drawdowns of around 23%. Only market-neutral funds have achieved approximately 14.4% positive returns through hedging strategies. The extreme market conditions on October 10th became a crucial turning point for the year. The sharp drop in Bitcoin led to nearly $20 billion in leveraged positions being liquidated within hours. This market panic triggered by Trump's tariff remarks not only caused a significant number of quant strategies to "blow up" but also exposed deep flaws in the cryptocurrency trading infrastructure in terms of liquidity pressure, risk control, and clearing mechanisms. For investors, this year has highlighted that even with improvements in regulatory environment and Wall Street's entry, the cryptocurrency market still faces systemic risks such as liquidity shortage and outdated infrastructure. The industry is now reassessing strategies, reducing exposure to altcoins, and turning towards decentralized finance and other niche areas for opportunities. Wall Street's entry changes the game rules Institutional funds are pouring into the cryptocurrency market through ETFs and structured products, fundamentally changing the industry ecosystem and competitive landscape. The once stable double-digit monthly returns are disappearing, and traditional arbitrage opportunities are significantly narrowing. For example, the profit from Bitcoin spot-futures basis trading has dropped from substantial double-digit figures to fleeting or even zero. Market maker Wincent's director Paul Howard pointed out that investors are using structured products with downside protection to reduce volatility and mitigate diminishing excess returns. Although Bitcoin still experiences significant fluctuations in less liquid periods, bringing substantial returns for early holders, the rapid market shifts make it challenging for many funds to efficiently enter or exit positions. At the same time, Wall Street institutions' deep involvement in the crypto market is narrowing spreads, further squeezing profits for traditional arbitrage strategies. Currently, the cryptocurrency hedge fund industry remains fragmented and small-scale. According to Crypto Insights Group data, the total assets under management for active liquidity strategies are around $12-15 billion, with typical fund management sizes of only around $30 million. While a few large institutions manage substantial funds, most participants are still in the middle to small-scale development stages. October flash crash exposes systemic vulnerabilities October 10th became one of the fastest liquidation events in cryptocurrency history. Trump's tariff remarks triggered a sharp market sell-off, causing prices to plummet by about 14% in a short period of time. The Managing Director of Forteus, a subsidiary asset management company of Numeus, Thomas Chladek, recalled, "I was on a flight from Asia to Europe at the time. I checked several managed accounts along the way and found all positions collapsing rapidly." Yuval Reisman, the founder of Atitlan Asset Management, pointed out that the market this year displayed significant "Trump volatility," irregular and violent fluctuations triggered by political and regulatory news. Directional funds that use subjective judgment or quantitative models saw their year-to-date returns almost completely wiped out within a few hours in the afternoon of that day. Especially quantitative strategies focusing on altcoins, which had been under continuous pressure due to thin liquidity, experienced several fund managers reporting "complete blow-ups." This impact goes beyond just price levels. The vulnerabilities of the cryptocurrency infrastructure were fully exposed: rapid evaporation of liquidity, trapped cross-exchange collateral, and severely outdated risk control systems. Many industry insiders who had experienced events like FTX and Terra Luna before said that this crash scene felt familiar, but more shocking in a market that should have been more robust and mature. Chladek summarized, "Trump's tweet may have triggered risk aversion, but it should not be responsible for the collapse of some coins by 80% in a single day. The fundamental problem lies in poor collateral management, which led to cascading liquidations after liquidity was withdrawn by market makers." Altcoin strategies suffer heavy losses Mean reversion strategies for altcoins suffered significantly in this market shock. During the October crash, dozens of tokens saw declines of over 40% within hours, directly causing model-based strategies that depended on prices to fail. Kacper Szafran, the founder of Malta-based M-Squared fund, said, "Our exposure to such strategies is relatively limited, and we have completely exited strategies that rely excessively on altcoin order book depth after the event." As a result, M-Squared dropped by 3.5% in October, marking its worst monthly performance since November 2022, which was also the largest drawdown since the fund opened up to external capital earlier this year. However, the fund later saw a 1.6% increase in November, partially recovering lost ground. In contrast, market-neutral cryptocurrency strategies showed more stable performance, with an overall increase of about 2% in October. However, these strategies require high precision in execution, complexity in infrastructure, and continuous monitoring capabilities. Bohumil Vosalik, CEO of BVI-registered 319 Capital, said, "Well-prepared institutions can achieve total returns of 1% to 3% within an hour by properly allocating collateral on various exchanges and establishing corresponding systems." Industry re-adjusting strategies This market crash further exposes the reality of lagging development in cryptocurrency infrastructure. Problems such as trading connectivity disruptions, market maker withdrawal, and order routing system failures have erupted. Losses continue to accumulate and escalate due to the lack of circuit breakers and central clearing systems. According to data from Kaiko and Bloomberg, the trading volume within a 1% range of Bitcoin's mid-price has significantly shrunk since October 10th, while volatility continues to rise, indicating that market liquidity has not recovered to pre-event levels. Peter Kosa, Growth Manager at Sigil Fund, said, "Overall, we have clearly observed a decline in market liquidity and an increase in volatility since October 10th." Facing this environment, many funds have been reducing altcoin risk exposure before the end of the year, turning towards decentralized finance areas to seek opportunities in the still fragmented and profitable DeFi market. However, as warned by industry observers like Szafran, "Some market participants may not return to their previous intensity quickly. This will inevitably lead to a reshaping of the overall strategy landscape."