Hard Times for ‘Smart Money’ as Crypto Hedge Funds Record Worst Year Since FTX

With less than two weeks to the end of 2025, crypto hedge funds are about to record their worst annual performance since 2022. Professional managers tracking market momentum and underlying fundamentals have seen their returns spiral into negative territory through November.

In a sharp split from the broader rally, only market-neutral strategies managed to eke out gains, fueled by a move toward risk-hedged vehicles as the “easy money” era of crypto arbitrage vanishes.

To understand this market shift, traders must be able to find the difference between the three primary strategies currently active in the space:

Bloomberg’s investigative data reveals a stark reality: 2025 was supposed to be a breakout year fueled by White House support and institutional entry.

Instead, it became a liquidity trap. While Bitcoin hit a record $126,000 in October 2025, the price action occurred in thin liquidity bursts. This made it nearly impossible for institutional funds to enter or exit positions without massive slippage.

Which proves why the historically lucrative basis trade evaporated. As Wall Street firms moved deeper via ETFs, spreads tightened, and the double-digit monthly returns once enjoyed by early crypto funds are now a memory.

This basis trade decay is a primary reason why directional funds are down 2.5% and fundamental-focused funds have plummeted by 23% through November 2025.

On the other hand, the market-neutral crypto hedge funds reported annual returns of about 14.4% through November 2025.

The sector-wide slump was ignited by a cluster of macro headwinds that caught managers off-guard.

As Cardano founder Charles Hoskinson noted, the crypto issue has been politicized ahead of the 2026 midterm elections, thus delaying the expected crypto supercycle in 2025 to potentially next year.

According to a , 2026 will present an environment to crypto hedge funds that is less about initiating exposure but more about deciding which strategies enhance higher inclusion.

“By the end of 2025, digital asset investing felt more accessible to institutions and more demanding at the same time. Regulation expanded access, while allocator behavior established higher standards. Active management in 2026 will be shaped by who’s prepared to meet those standards,” the report concluded.