Bitcoin’s Wild Swings Wreck Crypto Hedge Funds—Even as Regulations Clear
Crypto's supposed smart money just got a brutal reality check.
Regulatory Tailwinds, Market Headwinds
While policymakers finally seem to be sketching out the rulebook, the market itself is refusing to play nice. Bitcoin's signature volatility—the very engine that created these funds—is now tearing them apart. Portfolios built on sophisticated algorithms and leveraged bets are getting shredded by moves that no model predicted.
It's the ultimate irony: the clarity that institutions have been begging for is arriving just as their trading strategies are failing. The old playbook is broken. The funds that promised to navigate the chaos are being consumed by it, proving once again that in crypto, the only sure bet is uncertainty itself. A cynical observer might note this is what happens when you try to put a hedge fund fee on pure, unadulterated speculation.
October crash wipes out positions and exposes weak systems
Everything worsened on Oct. 10, when Trump’s campaign pledge to impose 100% tariffs on Chinese goods pushed Bitcoin down 14% within hours. Close to $20 billion in Leveraged positions vanished.
For Thomas Chladek, managing director at Forteus, the meltdown hit while he was in the air. “I was boarding a flight from Asia to Europe,” Chladek said. “I was checking a few managed accounts and mid-flight everything started collapsing.”
Chladek said, “The TRUMP tweet may have triggered a risk-off mood, but it’s not responsible for an 80% crash in certain coins. The issue was mismanagement of collateral that triggered cascading liquidations in a dry market after market makers pulled out.”
Yuval Reisman, founder of Atitlan Asset Management, described the year as driven by “Trump volatility,” with sudden moves tied to policy and politics.
Altcoin mean-reversion funds, which depend on short-term price corrections, were hit the hardest. Many tokens dropped more than 40% in hours. Kacper Szafran, founder of M-Squared, said his company shut down strategies that relied too much on thin order books. M-Squared fell 3.5% in October, its worst result since November 2022, before posting a 1.6% gain last month.
Meanwhile, market-neutral funds avoided most of the damage. Bohumil Vosalik, chief executive of 319 Capital, said funds with well-placed collateral “were able to generate 1% to 3% of gross returns in less than an hour.” His company closed October up 1.5% and November up 0.4%, bringing year-to-date gains to 12.2%.
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