Bitcoin News Today: Liquid crypto funds face 78% losses as Bitcoin surges 28% amid flawed strategies and liquidity risks

Liquid crypto funds are facing mounting pressure as market volatility and divergent asset performance expose structural weaknesses in the sector. The closure of Asymmetric Capital’s Liquid Alpha Fund—once a prominent altcoin-focused vehicle—has become a flashpoint in a broader reckoning with liquidity risks and flawed fund strategies. Despite Bitcoin’s 28% surge this year, Liquid Alpha reported a staggering 78% depreciation, highlighting the growing chasm between major cryptocurrencies and liquid crypto funds. Joe McCann, the fund’s founder, attributed the losses to high-volatility strategies that have become untenable in the current environment [1]. Industry analysts echoed these concerns, pointing to poor asset selection, leverage mismanagement, and inadequate risk controls as systemic issues [1].

Data from Galaxy Digital’s VisionTrack index underscores the challenges: funds focusing on fundamental strategies saw a 13.7% decline by June, compared to a 6.3% drop in the composite index. This disparity has deepened skepticism around altcoin-heavy portfolios, which suffered an average 40% slump in the first half of 2024 [1]. Cosmo Jiang of Pantera noted that restrictions preventing some funds from holding Bitcoin further distorted performance comparisons, as institutions were forced to allocate capital to riskier, less liquid assets [1].

The sector’s struggles have prompted a strategic recalibration. Investors are increasingly prioritizing revenue-generating protocols over speculative memecoins, a shift that has left underperforming assets in the dust. Rajiv Patel-O’Connor of Framework Ventures emphasized the need for projects to demonstrate “actual revenue generation” to align with evolving market demands [1]. This trend is mirrored in fund structures: hybrid vehicles blending cash with crypto and equities are gaining traction as tools to balance flexibility with downside protection in volatile markets [4]. Meanwhile, long-term asset funds (LTAFs)—semi-liquid options designed for UK investors—have attracted £5 billion in assets since 2021, though their appeal remains confined to institutional and pension markets [5].

Structural liquidity bottlenecks compound the challenges. Non-Bitcoin assets face fragmented trading activity and slippage risks, undermining the viability of leveraged or speculative strategies [1]. Ethereum’s recent volatility further illustrates the sector’s fragility: a surge past $3,800 triggered $28.41 million in short-position liquidations, while earlier declines underscored the impact of macroeconomic triggers like U.S. tariff announcements [8]. Analysts warn that liquidity itself is a double-edged sword—while its presence signals market confidence, it often decouples from price movements driven by supply-demand imbalances [7].

Investors are reevaluating approaches to mitigate exposure. Morningstar’s analysis highlights growing institutional interest in semi-liquid structures, though their complexity limits adoption by individual investors [5]. Ethena CEO insights reinforce the need for adaptive strategies in an era of rapid macroeconomic shifts [3]. The closure of Liquid Alpha serves as a cautionary tale: without addressing liquidity asymmetries and aligning fund strategies with evolving market conditions, liquid crypto vehicles risk continued underperformance against major assets like Bitcoin [1].

Source:

[1] [Liquid Alpha Fund Closure Signals Stormy Waters for ...](https://www.onesafe.io/blog/liquid-alpha-fund-closure-crypto-investing)

[2] [Bitcoin News Today: Crypto liquid funds lag 13.74% as ...](https://www.ainvest.com/news/bitcoin-news-today-crypto-liquid-funds-lag-13-74-bitcoin-jumps-28-flawed-strategies-altcoin-struggles-2507/)

[4] [Hybrid Funds: A smart counterweight in volatile markets?](https://m.economictimes.com/mf/analysis/hybrid-funds-a-smart-counterweight-in-volatile-markets/articleshow/122931990.cms)

[5] [LTAF assets hit £5bn four years after launch](https://citywire.com/new-model-adviser/news/ltaf-assets-hit-5bn-four-years-after-launch/a2470920)

[7] [How to make money in the cryptocurrency world?](https://www.binance.com/square/post/27492007372346)

[8] [Ethereum Surges Past $3800 as $28.41M Shorts Crushed ...](https://www.ainvest.com/news/ethereum-news-today-ethereum-surges-3-800-28-41m-shorts-crushed-2-2-rally-2507/)