After 150+ cryptocurrency hedge funds opened amid 2017's meteoric rise in prices, this year's ~50% drop in Bitcoin value has led at least 9 funds to close
At least nine funds have been shuttered so far this year — Funds have losses of 23 percent in 2018, industry tracker says
Context & Ripple Effects
The closure wave is the downside of a launch frenzy: crypto hedge funds had doubled to 226 in just four months, up from 37 at the start of 2017, with $3.5B–$5B under management — most of it raised into a rising market. Bitcoin's roughly 50% drop this year is now testing which of those vehicles were built to survive a drawdown.
The tracker's 23% year-to-date loss figure matters because these funds charge hedge-fund fees on an asset class with no earnings to cushion price declines; performance is the only thing keeping investors in.
First-order effects
- Investors in the nine shuttered funds face forced liquidation of positions into a falling market, while survivors running 23% losses must defend their fees against redemption pressure from the same limited partners who funded the 2017 boom.
Second-order effects
- New fund launches should slow sharply as the fundraising pitch that worked in a rising market loses credibility, concentrating assets at the larger, longer-track-record funds that can absorb the drawdown.
Third-order effects
- The pattern repeats across cycles: after 2021's peak, inflows collapsed 95% to $433M in 2022 — the worst year since this one — and even blue-chip vehicles like a16z's flagship crypto fund took ~40% losses, yet by 2024 47% of traditional hedge funds held crypto again. Each bust culls weak managers without shrinking the asset class permanently.
The trend: Crypto fund management runs on a boom-bust cycle where launches chase rallies, drawdowns force closures among undifferentiated small funds, and surviving scale players capture the next recovery.