Last year proved to be a remarkable one for cryptocurrencies, with Bitcoin leading the charge and leaving many crypto-focused hedge funds trailing in its wake. While hedge funds dedicated to digital assets posted impressive double-digit returns, the world’s largest cryptocurrency surged by an unprecedented 120%, breaking the $100,000 barrier for the first time.
According to Galaxy’s Visiontrack Composite Index, which monitors the performance of 130 crypto-focused hedge funds, these funds collectively achieved a 40% gain in 2024. Despite this, their performance paled compared to Bitcoin’s meteoric rise.
“2024 was a challenging year for a lot of crypto funds because it was a Bitcoin and memecoins year—those were the best assets, and everything else trailed behind,” said David Kalk, founder and chief investment officer of Reflexive Capital, a firm that invests in Bitcoin among other digital assets.
Hedge Funds Struggle to Match Bitcoin’s Gains
Crypto hedge funds often rely on proprietary strategies that don’t always prioritize direct Bitcoin investments. This approach, while innovative, meant missing out on Bitcoin’s extraordinary returns. Investors also leaned toward low-fee exchange-traded funds (ETFs) holding Bitcoin, bypassing higher-cost hedge fund strategies.
David Jeong, CEO of algorithmic trading platform Tread.fi, noted the difficulty of outperforming Bitcoin. “It’s really hard to time these things. In the hedge fund world, drawdowns are quite sensitive, and you can’t just always be fully exposed long,” Jeong explained.
Despite the challenges, some funds delivered standout performances. Visiontrack’s Quant Directional Index rose by 53.7%, while its Fundamental Index gained 40.4%. The Market Neutral Index, designed for risk-averse strategies, added a more modest 18.5%.
Galaxy Digital’s Alpha Liquid Fund posted a 76.6% gain, while the Prochain Master Fund, led by David Tawil, grew by approximately 70%. Reflexive Capital, with its long-biased fundamental crypto hedge fund, achieved a remarkable 106% net return, according to sources familiar with its performance.
Bitcoin ETFs and Market Catalysts
The successful launch of Bitcoin exchange-traded funds, particularly BlackRock’s iShares Bitcoin Trust, fueled Bitcoin’s record-breaking year. Launched at the start of 2024, the ETF amassed over $50 billion in assets within 11 months, smashing industry records.
Additionally, President-elect Donald Trump’s unexpected embrace of cryptocurrency boosted investor optimism. Trump, once a crypto skeptic, emerged as a vocal supporter of the industry, driving Bitcoin and other cryptocurrencies to new highs following his election victory.
“There’s been a real shift in investor enthusiasm around the space on the back of this catalyst,” said Kalk of Reflexive Capital. “Fundraising has been really challenging over the last couple of years, and that’s likely going to change in 2025.”
Optimism for 2025
The final quarter of 2024 proved pivotal for crypto hedge funds, with significant gains driven by bullish sentiment surrounding the incoming U.S. administration and the broader adoption of Bitcoin ETFs. Despite volatility earlier in the year, the industry ended 2024 on a high note, fueling optimism for fresh capital inflows in the year ahead.
Galaxy Research highlighted the disparity in performance among crypto hedge funds, noting that only the top-performing funds managed to outperform Bitcoin. “The distribution of returns was wide, with the laggards not well-positioned for the November run-up,” Galaxy’s team stated.
As 2025 begins, the cryptocurrency sector stands at a crossroads, buoyed by renewed investor confidence and institutional support. Whether hedge funds can close the gap with Bitcoin’s extraordinary performance remains a pressing question for the industry.
