Crypto Hedge Funds Thrive as Traditional Strategies Resurface in Digital Markets
Crypto fund managers are capitalizing on strategies that have long lost their edge in traditional finance, making this a prime era for hedge fund investments in digital assets.
That’s the perspective of Chris Solarz, Chief Investment Officer of Digital Assets at Amitis Capital, a firm specializing in crypto-focused fund-of-funds investments.
“This is the golden age for investing in crypto hedge funds,” Solarz stated in a recent interview. Formerly overseeing nearly $8 billion in allocations at advisory firm Cliffwater, he emphasized the rare alignment of favorable market conditions and a limited number of skilled money managers. “Blockchain has immense potential, yet the field is so underdeveloped that picking winners feels like shooting fish in a barrel.”
According to Solarz, crypto markets are still young enough that fund managers can successfully apply trading strategies from decades ago—methods that ceased working in traditional finance due to market saturation and increased competition.
Back in 1990, only 127 hedge funds managed roughly $39 billion in assets. By 2024, those figures had skyrocketed to over 10,000 funds managing $5 trillion. The extreme competitiveness of traditional hedge funds made it increasingly difficult to outperform the market. By contrast, today’s crypto sector, which has around 1,650 hedge funds managing just $88 billion, is significantly less crowded, allowing old trading techniques to be repurposed.
“I meet with 20 crypto fund managers, and 19 of them aren’t qualified to be managing money,” Solarz noted. “A lot are young, inexperienced, and simply investing in Bitcoin, Ethereum, and Solana. Why would I pay 20% fees for something I could just buy in an ETF?”
Solarz believes crypto’s inefficiencies will continue to provide opportunities until the sector fully integrates with mainstream finance. Eventually, he predicts, “crypto” will cease to be a distinct industry—just as no one today talks about ‘dot-com companies’ since the internet became universal. He anticipates Bitcoin’s market cap could reach parity with gold within the next decade, further driving institutional adoption.
No More Altcoin Seasons
Solarz categorizes crypto hedge funds into three major groups: venture funds (startup investments), liquid directional funds (betting on market movements), and liquid market-neutral funds (strategies designed to profit regardless of price swings).
When evaluating liquid directional funds, Solarz prioritizes risk management and investment processes over specific market theses. He emphasizes a data-driven approach to assessing fund performance, filtering out weaker managers and reducing downside risk.
“It’s easy to avoid the big losers. Identifying the best winners, though, requires both analysis and a bit of luck,” he admitted.
One major shift in the crypto landscape is the disappearance of broad altcoin rallies. With over 40 million tokens now in circulation, Solarz estimates that 99.99% will eventually become worthless.
“There are only about 100 tokens that are even worth discussing,” he stated.
Moreover, he predicts that the crypto market needs an infusion of at least $300 billion over the next three years to maintain current price levels. With massive token unlocks on the horizon and retail traders increasingly focused on memecoins, there’s currently no natural buyer base for many altcoins.
“That’s why we’re unlikely to see another general altcoin bull run anytime soon,” Solarz explained.
Market-Neutral Strategies Hold Strong
Historically, five times more capital has flowed into crypto venture funds than into liquid funds, largely because venture investments allow firms to conceal mark-to-market losses. However, Amitis Capital sees greater opportunities in liquid strategies. Solarz’s allocations reflect this view: out of 14 current investments, only three are in venture funds, while four are in liquid directional and seven in liquid market-neutral strategies.
“Institutions primarily focus on avoiding losses, whereas family offices like ours aim to compound returns,” Solarz noted. “We’re selective with venture investments, as locking up capital for a decade carries significant opportunity costs.”
Market-neutral strategies remain highly profitable. For instance, traders capitalized on price discrepancies in South Korean markets last December when political turmoil triggered localized panic selling. Additionally, institutional investors continue profiting from perpetual contract funding rates by maintaining delta-neutral positions—simultaneously shorting a token while holding spot exposure, earning interest rates that can reach 30% annualized.
“These strategies still generate consistent double-digit returns,” Solarz confirmed. “Crypto hedge funds are thriving, and for those who know where to look, this remains a highly lucrative market.”
