Bitcoin News Today: Liquid Crypto Funds Drop 78% Amid Altcoin Overexposure Leverage as Bitcoin Rises 28%

Liquid crypto funds are facing mounting challenges as market volatility and structural inefficiencies widen the gap between asset performance and investor returns. The closure of Asymmetric Capital’s Liquid Alpha Fund, which has depreciated by 78% year-to-date despite a 28% rise in Bitcoin, underscores the struggles of liquidity-focused strategies [1]. Experts attribute the underperformance to overexposure to altcoins, excessive leverage, and inadequate risk management. Joe McCann, the fund’s founder, highlighted that strategies designed for high volatility are now eroding investor trust, as poor asset selection and unprofitable options strategies amplify losses [1].

Performance disparities are stark. Galaxy Digital’s VisionTrack index revealed that fundamental-strategy funds fell 13.7% by June, outpacing the 6.3% decline in the composite index. Altcoin-heavy portfolios fared worse, with an average 40% drop in the first half of 2023. Cosmo Jiang of Pantera noted contractual restrictions preventing many funds from holding Bitcoin, a key driver of market gains, while Balder Romans of Maven 11 pointed to delayed responses during April’s altcoin crash as a missed opportunity to capitalize on the May and July rebounds [1]. Analysts like Arthur Cheong emphasized that leveraged, memecoin-driven positions and flawed options strategies exacerbated losses, while Ryan Watkins observed poor timing in selling during dips and reinvesting in weaker assets [1].

The sector’s pivot toward fundamentally strong coins is gaining traction, but progress is uneven. Rajiv Patel-O’Connor of Framework Ventures noted that speculative memecoins have ceded ground to revenue-generating projects, though non-revenue-generating coins remain stagnant. Rob Hadick of Dragonfly predicted short-term resilience for low-quality coins with broad exchange listings but long-term dominance for projects with robust fundamentals [1]. Meanwhile, Thomas Klocanas of Strobe Ventures highlighted growing interest in protocols enabling fee-switching or buybacks, signaling a shift toward token utility over speculation.

Market participants stress the urgency of addressing liquidity and risk management. Rajiv Patel-O’Connor emphasized that revenue generation is now a non-negotiable criterion for investment viability, while Bomans of Maven 11 underscored the need for rapid decision-making, disciplined positioning, and robust liquidity frameworks [1]. Institutional confidence, however, remains fragile. Lex Sokolin of Generative Ventures noted that while on-chain activity supports Bitcoin and Ethereum, smaller-cap coins lack similar momentum, creating a structural drag on fund performance [1].

The crisis in liquid crypto funds reflects broader systemic issues. Redemption delays, depegging of liquid staking tokens (LSTs), and rising borrowing costs in DeFi are compounding risks. stETH, for example, has deviated from its 1:1 peg with Ethereum, eroding trust in its stability. Redemption backlogs and smart contract constraints further hinder investor access during critical market shifts [2]. Analysts warn that macroeconomic volatility, particularly around interest rate expectations, intensifies liquidity strains. Funds reliant on stablecoin collateral or yield-generating mechanisms face heightened exposure to broader financial market fluctuations [2].

Solutions remain contentious. Advocates for protocol upgrades seek faster redemptions and stable token pegs, while others push for diversified collateral models to mitigate single-asset volatility. Regulatory clarity is also critical, as standardized rules for liquid staking remain elusive [2]. Without addressing these structural weaknesses, liquid crypto funds risk losing relevance even in bullish cycles, as institutional investors demand clearer governance and transparency [2].

Source:

[1] [Dive into Liquid Crypto Funds’ Struggle with Market Waves](https://coinmarketcap.com/community/articles/68873882ccfa7925fe395c56/)

[2] [LSTs Face Liquidity Crisis as stETH Depegging Drives 25% Share Drop](https://www.ainvest.com/news/ethereum-news-today-lsts-face-liquidity-crisis-steth-depegging-drives-25-25-share-drop-33b-eth-risk-2507/)