Why is it so hard for crypto liquid funds to beat bitcoin this cycle?

Bitcoin dominance and a glut of altcoin supply are contributing factors

article-image

dengali/Shutterstock and Adobe modified by Blockworks

share

This is a segment from the 0xResearch newsletter. To read full editions, subscribe.


The following is part one of a multi-part series on the state of crypto liquid markets, based on several conversations with liquid funds.

It’s an open secret that most crypto liquid funds are underperforming.

Liquid funds work similarly to traditional hedge funds: Pick a market direction, deploy capital and outperform a benchmark.

Unlike hedge funds, however, the yardstick to beat is not a composite benchmark like the S&P 500. Crypto liquid funds are in the game to beat bitcoin.

For example, bitcoin appreciated ~110% in 2024. Any liquid fund performing below that benchmark is underperforming, or considered average at best.

Unfortunately, the rise of orange coin means liquid funds have a much harder job.

Bitcoin has generally held steady on a year-to-date basis while the rest of the altcoin market has plunged into oblivion.

Consider bitcoin dominance (BTC.D), which has steadily climbed over the past year to 63% today against a total crypto market cap of $3.3 trillion. 

Contrast that to last cycle’s market cap peak in November 2021 when BTC.D hovered at the 40-45% range.

VCs such as DBA’s Jon Charbonneau even question BTC as a benchmark. The appropriate benchmark may be a weighted-average basket of alts like ETH, SOL and BNB, Charbonneau said on the 0xResearch podcast.

This likely explains the noticeably bearish vibes in the Crypto Twitter echo chamber despite bitcoin hovering close to its all time-highs. Many higher risk-seeking investors are positioned on the thesis that altcoins would surge harder than bitcoin, and therefore have been “sidelined” from BTC’s rally.

Pantera’s Cosmo Jiang told me: “It’s not great right now. Most directional liquid funds are probably negative against BTC. For the market-neutral liquid funds, industry averages are irrelevant. Yet they too are having a bad year, but that means they’re generally flat on performance, not positive.”

Practically every liquid fund I’ve spoken to agrees that bitcoin has situated itself as an institutional/macro asset, or as “digital gold.” 

“We’re at an interesting point in the S-curve of bitcoin’s adoption where you see penetration rising quickly because of ETFs and the US government’s strategic reserve. Bitcoin inflows exceeded Nasdaq’s QQQ inflows last year, which is crazy,” Jiang said. “Most players still don’t appreciate the nuance that BTC performance is vastly different from the rest of the crypto market.”

It’s not just all about orange coin either, which is incidentally up 11% on the week.

The faltering performance of most liquid funds is impacted by a dark, looming cloud hovering over the altcoin market. The glut of L1/L2, DeFi, DePIN, AI and memecoins that already exist and are soon to be unlocked spells a bleak outlook, Defiance Capital’s Arthur Cheong told me.

“The unlock schedule for all alts, excluding ETH, is estimated to be $1 billion every month for the next two years. There simply isn’t that much demand for altcoins. The total capital by all crypto liquid funds comes up to ~$10-15 billion of capital,” Cheong said.

These structural dynamics, too, affect liquid funds specialized in market-neutral strategies.

“Even when projects try to sell their locked tokens over the counter (OTC) at 30-40% discounts, it’s hard to find a buyer. There’s a broad expectation by markets that altcoins will plunge,” Presto research analyst Min Jung said.

$60 billion in buying pressure would be needed to sustain the prices of the top 10 largest tokens (STRK, ENA, JUP, ONDO, etc.) launched in 2024, Presto wrote last year.

This mismatch in demand and supply means that liquid funds must work harder to pick the “right” winners. 

The “rising tide (BTC) lifts all boats (altcoins)” phenomenon of past cycles is no more.

In the second part of this series, we’ll look at:

  • How are liquid funds are grappling onto fundamentals to adapt?
  • What crypto sectors are liquid funds looking at?
  • Is the four-year cycle dead? 
  • Is the L1 valuation premium dead? 

Keep your eyes peeled for Part Two later this week in the 0xResearch newsletter.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Decoding crypto and the markets. Daily, with Byron Gilliam.

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Brooklyn, NY

SUN - MON, JUN. 22 - 23, 2025

Blockworks and Cracked Labs are teaming up for the third installment of the Permissionless Hackathon, happening June 22–23, 2025 in Brooklyn, NY. This is a 36-hour IRL builder sprint where developers, designers, and creatives ship real projects solving real problems across […]

recent research

Research Report Templates (19).png

Research

Suilend has grown into the top money market and liquid staking provider on Sui. STEAMM, Suilend’s Superfluid AMM, presents a compelling avenue for growing market share within Sui’s DEX landscape and revenue generation for the protocol. Suilend’s multi-product suite position it well for owning market share across key verticals. While current metrics across the Sui ecosystem are likely inflated due to Sui Foundation incentive programs, SEND trades at amongst the lowest multiples in the lend/borrow sector, suggesting that a bull case for continued growth in the ecosystem may be mispriced.

article-image

Silk Road founder Ulbricht made a triumphant return to the Bitcoin Conference, 10 years on from sentencing

article-image

A Blockworks Research report looked at who could take up some of the marketshare in the launchpad space

article-image

Business-to-business stablecoin payments are on the rise, per a report from Artemis, Dragonfly and Castle Island

article-image

Crypto continues to do its thing: incentivizing behavior

article-image

Kraken will soon offer Backed ‘xStocks’ as Solana tokens

article-image

In a unanimous decision, the US Court of International Trade has ruled that Trump’s IEEPA tariffs are unlawful