The Funding: Why crypto liquid funds are underperforming in a bullish market

Back in April, I wrote about how crypto liquid funds were deep in the red after a rough Q1. Since then, markets have bounced. But some funds haven’t — and Asymmetric’s Liquid Alpha Fund has now shut down after reportedly losing 78% year to date. So what’s still going wrong?

Joe McCann, founder, CEO, and CIO of Asymmetric, didn’t directly explain the reason behind the closure. In a post on X this week, he said the fund was built for "markets defined by high volatility” — but that strategy no longer served its LPs. The firm is now exiting liquid trading and offering investors the option to redeem or roll into a specific illiquid investment. Its other vehicles remain active, and the venture strategy continues. McCann did not respond to The Block’s requests for comment.

Arthur Cheong, founder, CEO, and CIO of DeFiance Capital, pointed to Asymmetric’s trading style as a likely reason behind the steep losses — including highly leveraged positions in extremely volatile tokens, active trading in memecoins like BONK and MOTHER, and an options strategy that may have backfired. While many liquid funds struggled in Q1, most rebounded in Q2, including DeFiance’s flagship liquid fund, which posted “substantial positive gains in Q2 and recovered a lot of Q1 losses,” Cheong said — adding that Asymmetric had “the worst H1 return of all liquid funds I know.”

Some data backs this up, as losses appear to have reduced after the rough Q1. According to Galaxy Digital’s VisionTrack crypto hedge fund indices (YTD through June), the Fundamental Index is down 13.74%, and the Composite Index is down 6.36%. Market Neutral and Quantitative strategies are faring better, with gains of 5.05% and 0.26%, respectively. Bitcoin, meanwhile, is up around 28% YTD — widening the gap and raising the question: are active liquid funds still adding value?

Why liquid funds are still falling behind

Bitcoin has rallied in recent months, but most tokens haven’t. The top 100 were still down 40% on average at the end of Q2, said Cosmo Jiang, general partner at Pantera Capital. Yet many liquid funds — often by mandate — hold no bitcoin, often due to LP constraints. That leaves them picking from a pool of underperforming altcoins while being compared to BTC as a benchmark. “Benchmarking a liquid crypto fund against Bitcoin is like choosing Nvidia as a benchmark for an equity fund, and the average equity fund would also pale in comparison,” Jiang said.

The structure of the market has also changed. Rajiv Patel-O’Connor, partner at Framework Ventures, noted that the shift from speculative, memecoin-led flows to more fundamental-driven investing might have caught some funds off guard. “Many funds may still be adjusting to this new environment and some were likely caught holding underperforming assets as a result,” he said. Those who bet too heavily against Ethereum may also still be stuck with poor-performing assets, he added.

April’s altcoin crash was a turning point. Balder Bomans, CIO and managing partner at Maven 11 Capital, noted that many tokens fell 50%-80% at the time from their December highs — and funds that didn’t cut exposure in time or didn’t have the liquidity to re-enter missed both the rebound in May and the rally in July. He added that macro uncertainty, shifting narratives, and patchy liquidity have made it harder to size positions and exit cleanly, compounding the challenge for many managers.

Asset selection and timing matter, too. Ryan Watkins, founder of Syncracy Capital, said many funds sold on the way down, bought back late, or shorted the bottom. Even those that stayed long often picked the wrong tokens. Cheong added that very few tokens in the top 300 have outperformed bitcoin this year — so betting on the wrong ones has been costly.

There’s also a structural disconnect. Lex Sokolin, co-founder and managing partner at Generative Ventures, pointed out that institutional inflows have boosted bitcoin and ether prices, but onchain activity hasn’t kept up. That means less momentum for other tokens. “Liquid funds have to bid on low market cap coins and hope they get usage and adoption. But if one doesn’t want to participate in market structure arbitrage (i.e., low floats and pushing prices), it is a difficult proposition from a macro perspective,” he said.

Add it all up, and even in a bullish market, liquid funds are facing one of their toughest years in recent memory.

What it takes to win in liquid crypto today

Almost everyone agrees: quality still matters — but the bar is much higher.

Patel-O’Connor said it bluntly: “Tokens need to make money.” That means real business models, actual revenue, and mechanisms that return value to holders. Thomas Klocanas, managing partner at Strobe Ventures (formerly of BlockTower), also noted that investors are finally focusing on protocols with real usage, traction, and revenue. “That, coupled with multiple tokens (e.g., some of the top DeFi names like SKY, ENA, SYR, HYPE, and more) turn on or discuss fee switches, plus implement buybacks, has led to stronger momentum in these quality names,” he said.

Rob Hadick, general partner at Dragonfly, also said that “flight to quality” remains a key theme in today’s market. Still, he noted that even lower-quality tokens have rallied in recent weeks, especially those with wide exchange listings and distribution. But as the market continues to mature, Hadick expects to see more divergence between fundamentally strong assets and those riding hype — with the former likely to sustain performance over time.

But it’s not just about what you hold. Bomans said success requires sharper execution: quick reflexes, disciplined sizing, and strong liquidity and risk management. “Operational edge matters just as much as investment insight,” he said.

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