Crypto Fund Managers Revive Old Strategies as Market Presents Unique Opportunities

The crypto hedge fund landscape is providing investment managers with a rare opportunity to deploy trading strategies that have long since stopped being effective in traditional finance (TradFi).

According to Chris Solarz, Chief Investment Officer of Digital Assets at Amitis Capital, the current market conditions create an ideal environment for allocating capital to crypto hedge funds. Amitis Capital operates a fund of funds, specializing in distributing capital to various money managers.

“This is the golden age for crypto hedge fund investing,” Solarz said in an interview with CoinDesk. With a background overseeing nearly $8 billion in allocations at investor advisory firm Cliffwater, he believes the industry is in a unique phase. “We have an extraordinary alignment of market conditions—a secular tailwind for blockchain, coupled with a scarcity of skilled money managers. It feels like an open field for picking winners.”

A Market with Fewer Competitors

Solarz noted that crypto markets are still in their infancy, allowing traders to utilize strategies that were prevalent in TradFi 35 years ago, during the early days of hedge funds. Back in 1990, there were only 127 hedge funds managing around $39 billion in assets. By 2024, the number of funds had exceeded 10,000, with total assets under management reaching $5 trillion. The increase in competition made it much more difficult for funds to outperform the broader market.

In contrast, the crypto sector remains relatively uncompetitive. With around 1,650 hedge funds managing approximately $88 billion in assets, the space is ten times less saturated than traditional markets. This lack of competition allows money managers to revisit and refine older strategies that had lost their edge in TradFi more than a decade ago.

“I meet 20 managers, and 19 of them shouldn’t be running money,” Solarz observed. “Many are young and inexperienced. When they tell me they’re simply investing in Bitcoin, Ethereum, and Solana, I have to ask—why would I pay them 20% for something I could do myself or buy in ETF form?”

He believes that asymmetric opportunities will persist until blockchain technology becomes fully integrated into global finance. Just as no company today identifies itself as a “dot-com company” because web technology is ubiquitous, he anticipates that crypto will eventually become a standard component of financial markets. A milestone in this shift, he suggests, could be Bitcoin achieving gold-like market capitalization within the next decade.

Altcoin Season Is Over

Solarz categorizes funds into three main groups: venture capital funds (which invest in startups), liquid directional funds (which bet on market movements), and liquid market-neutral funds (which aim to profit regardless of price direction).

When evaluating liquid directional funds, he prioritizes risk management and repeatable investment processes over specific market theses.

“Avoiding big losers is easy, but consistently picking winners is tough,” he explained. “If a manager lacks a sound investment framework, it’s an automatic pass. That said, even the best performers need some luck.”

One reason for rigorous selection is the end of broad altcoin rallies. According to Solarz, the crypto space now includes nearly 40 million tokens, 99.99% of which he expects will eventually become worthless. “Only about 100 are even worth discussing,” he stated.

For crypto prices to remain stable over the next three years, an estimated $300 billion in new capital would be needed, Solarz argued. However, major token unlocks in the top 100 assets will exert downward pressure. With retail investors shifting focus to meme coins, and the liquid token market for hedge funds standing at just $30 billion, there is currently no obvious source of demand to absorb the incoming supply.

“This is the overhang,” he said. “This is why we can’t expect an altcoin bull market anytime soon.”

Market-Neutral Strategies Hold Strong

Historically, venture capital (VC) funds have attracted five times more capital than all liquid crypto funds combined, Solarz noted. This is partly because VC investments allow institutions to avoid marking losses to market value, making them more palatable to investment committees. However, Amitis Capital sees greater opportunities on the liquid side.

Of the 14 funds Amitis has allocated to, three are venture funds, four are liquid directional, and seven are liquid market-neutral.

“Institutions focus on avoiding losses, while family offices aim to compound returns,” Solarz explained. “I’m open to compelling VC opportunities, but locking up money for a decade requires a much higher return threshold.”

Market-neutral strategies continue to generate significant profits, he noted. One example was the arbitrage opportunity in December when South Korea’s President Yoon Suk Yeol declared martial law, triggering a regional crisis. While South Korean investors panic-sold assets, global traders maintained market confidence, allowing hedge funds to capitalize on price disparities.

Another lucrative strategy involves exploiting funding rates in perpetual contracts. Institutional investors often short a cryptocurrency while simultaneously gaining spot exposure, allowing them to remain market-neutral while collecting interest on perpetual swaps. These rates can yield annualized returns of up to 30%. The same approach is applied to spot Bitcoin ETFs and CME Group Bitcoin futures.

“These strategies remain highly profitable,” Solarz concluded. “Double-digit returns are still achievable with consistency.”