Targeted at traditional entrepreneurs, this article deciphers crypto funds by illustrating their evolution from speculative instruments to institutional-grade asset classes.
It breaks down the profit logic, advantages, disadvantages and historical performance of six core strategies including Long Only and quantitative trading, analyzes the unique arbitrage and trend opportunities in the crypto market, and provides a selection guide based on capital nature and risk appetite, helping entrepreneurs allocate crypto funds in a rational manner.
Targeted at traditional entrepreneurs, this article deciphers crypto funds by illustrating their evolution from speculative instruments to institutional-grade asset classes.
It breaks down the profit logic, advantages, disadvantages and historical performance of six core strategies including Long Only and quantitative trading, analyzes the unique arbitrage and trend opportunities in the crypto market, and provides a selection guide based on capital nature and risk appetite, helping entrepreneurs allocate crypto funds in a rational manner.
Introduction
Disclaimer: This article is written from an international jurisdictional perspective and does not target or apply to the legal environment of Mainland China.
This year, I have increasingly heard traditional entrepreneurs ask the same question: “I don’t understand the crypto market, but I want to know what crypto funds are all about.”
Some seek asset diversification; others aim to hedge against exchange rate fluctuations; still others simply think, “If institutions are starting to invest, I can’t afford to ignore it.”
But as soon as they open a fund prospectus, these entrepreneurs are immediately overwhelmed by jargon:
- Long Only?
- Market Neutral?
- Funding Rate?
- Multi-Strategy?
- Web3 VC?
- CTA? Factor Models?
More importantly:
What exactly do these strategies do? Which ones are stable? Which have high drawdowns? Which have actually been profitable over the past five years?
This article is written for you. It will:
- Explain how crypto funds are categorized in plain language
- Break down how each strategy actually makes money
- Highlight the pros and cons of each approach
- Analyze their performance trends over the past five years
- Guide entrepreneurs on how to choose the right crypto fund
After reading, you will be able to clearly judge:
“Whether crypto funds are suitable for me, and if so, which type to choose.”
Why Are More Traditional Entrepreneurs Looking into Crypto Funds?
The reason is simple: Crypto funds have evolved from a “speculator’s playground” into an institutional-grade asset class. Three key trends are driving this shift:
Trend 1: Global Institutions Are Quietly Increasing Crypto Allocations
- BlackRock and Fidelity have launched Bitcoin/Ethereum ETFs.
- JPMorgan, Deutsche Bank, and other financial giants are expanding crypto-related custody services.
- Sovereign wealth funds, pension funds, and insurance capital are starting to allocate to digital assets.
As institutions enter the market, the status of crypto assets has changed. They are no longer a fringe investment, but a legitimate part of alternative asset portfolios.
Trend 2: Crypto Funds Are Far More Professional Than Individual Trading
The crypto market is highly volatile, trades 24/7, features complex derivatives, and evolves at breakneck speed.
For professional teams, these characteristics are not obstacles—they are opportunities:
- Clear trend signals → ideal for quantitative strategies
- Fragmented exchanges → create arbitrage opportunities
- Perpetual contract mechanism → generate funding rate yields
- Short innovation cycles → deliver outsized VC-style returns
- Transparent on-chain data → enable verifiable strategy backtesting
In short, crypto funds can execute far more sophisticated strategies than the average retail investor.
Trend 3: Entrepreneurs Need New Vehicles for Asset Allocation
Real estate cycles are weakening, A-shares have oscillated for years, Hong Kong stocks remain depressed, and while dollar assets offer high interest rates, their future outlook is uncertain.
Many business owners are asking:
“Where will the next five years of growth come from?”
Crypto funds provide a new solution with unique advantages:
- Aggressive growth: Capture market trends
- Defensive stability: Earn arbitrage profits
- Innovation exposure: Bet on cutting-edge Web3 projects
- Rapid institutionalization: With mature custody, auditing, and compliance frameworks
This is why crypto funds are emerging as a new option for entrepreneurs’ asset allocation.
Six Core Strategies of Crypto Funds
The following six categories represent the industry’s most widely accepted classification system, tailored for entrepreneurs to understand (based on data from Crypto Fund Research and Galaxy VisionTrack):
1. Long Only – Bet on Cycles, Capture Major Trends
How does it make money?
Buy mainstream crypto assets (BTC, ETH, top-tier altcoins) and hold them long-term, adding positions during market dips.
Core logic in one sentence:
“Believe in crypto’s long-term appreciation—and hold on tight.”
Pros:
- Delivers the highest returns in bull markets
- Simple, transparent, and low-cost to operate
Cons:
- Suffers extreme drawdowns in bear markets
- Requires very high risk tolerance
Suitable for: Investors willing to endure volatility for long-term gains.
2. Long/Short – Profit in Both Bull and Bear Markets; Trader Skill Is Critical
How does it make money?
Relies on the team’s market judgment:
- Go long → increase positions when bullish
- Hedge or short → reduce exposure when bearish
- Event-driven → capitalize on news, airdrops, and protocol upgrades
Simplified explanation:
“Professional traders manage your portfolio dynamically.”
Pros:
- Can hedge risks during market downturns
- Lower volatility compared to Long Only strategies
Cons:
- Success depends entirely on the trading team’s expertise
- Identifying skilled managers is the key challenge
Suitable for: Investors who want exposure to market trends but are wary of unhedged risk.
3. Quantitative Directional – Models Rule, Emotions Are Irrelevant
How does it make money?
Execute trades using mathematical models:
- Trend-following CTA
- Momentum strategies
- Multi-factor models
- Statistical arbitrage signals
Simplified explanation:
“Algorithmic trading—no news watching, no emotional bets, just strict adherence to model signals.”
Pros:
- High discipline and consistency
- Strong performance when market trends are clear
- Minimizes human error
Cons:
- Models can suddenly fail during regime shifts
- Sensitive to transaction costs and slippage
Suitable for: Investors seeking “smoother trend-driven returns.”
4. Market Neutral / Arbitrage – One of the Lowest Directional Risk Strategies
How does it make money?
Construct portfolios that are agnostic to market direction, profiting from price discrepancies and interest spreads.
Typical strategies include:
- Funding rate arbitrage
- Spot-perpetual basis arbitrage
- Cross-exchange arbitrage
- Market making
- Low-risk on-chain yield strategies
Simplified explanation:
“Crypto’s version of money market funds + arbitrage funds.”
Pros:
- Lowest volatility among all strategies
- Minimal drawdowns
- Stable cash flow generation
Cons:
- Limited upside potential
- Risks concentrated in counterparty (exchange) and on-chain technical failures
Suitable for: Entrepreneurs with idle corporate capital seeking steady returns.
5. Crypto VC (Venture / SAFT) – Bullets for Betting on Innovation
How does it make money?
Invest in early-stage Web3 projects, profiting from:
- Equity appreciation as projects grow
- Token Generation Events (TGEs)
- Secondary market exits after token unlocks
Similar to traditional VC, but with shorter investment cycles and higher volatility.
Pros:
- A single successful project can offset all losses
- Gains insight into the future direction of the industry
Cons:
- Low project survival rate
- Long lock-up periods
- Opaque valuation methodologies
Suitable for: Large capital pools looking to bet on high-growth tracks and innovation.
6. Multi-Strategy – Combine the Strengths of Multiple Approaches
Simultaneously deploys:
- Long Only
- Quantitative strategies
- Arbitrage
- VC investments
- Event-driven trades
Core objective:
“Pursue balanced returns under controlled risk.”
Pros:
- Lower drawdowns than Long Only strategies
- Higher returns than pure arbitrage strategies
Cons:
- Complex fund structure and operations
- Requires top-tier fund management capabilities
Suitable for: Entrepreneurs new to crypto funds who want a stable entry point.
Summary: The pros and cons of the above strategies are summarized as follows:
The Real Profit Logic Behind Crypto Funds
Why is the crypto market particularly well-suited for fund strategies? Because it has three structural characteristics not found in traditional markets:
1. Perpetual Contract Mechanism → Funding Rate Arbitrage Opportunities
Perpetual contracts are a unique structure in crypto markets.
Every 8 hours, long positions pay funding fees to short positions (or vice versa), depending on market sentiment.
This means:
“When the market is bullish, longs pay shorts—shorts earn steady income.”
Funds can execute the following trade:
- Buy spot assets
- Short perpetual contracts
This “locks in the price” and earns a steady stream of funding rate income—one of the most stable profit sources in crypto arbitrage.
2. Multi-Exchange Structure → Inherent Arbitrage Opportunities
Due to:
- A large number of exchanges
- Fragmented liquidity
- Divergent exchange preferences
- Inconsistent stablecoin ecosystems
Price discrepancies for the same asset often arise across different exchanges.
Funds use algorithmic trading to exploit these gaps through:
- Cross-exchange arbitrage
- Spot-futures arbitrage
- Futures-perpetual arbitrage
These profits do not rely on “betting on direction”—they rely on mathematical precision and trading speed.
3. High Volatility → Trend Strategies Are More Effective
In highly volatile markets:
- Trends are more pronounced and persistent
- Trading signals are clearer
- Quantitative models have more “data to feed on”
This is a key reason why crypto quantitative strategies have flourished.
Performance of Various Strategies Over the Past Five Years
According to data from the VisionTrack Crypto Hedge Fund Indices, the annual returns of four key strategies over the past five years are as follows:
Based on a summary of widely cited public index trends, we analyze the performance of all six strategies below:
- Long Only: Highest upside, steepest downside
- Bull markets (2017, 2020–2021, 2023): Top performer
- Bear markets (2018, 2022): Worst performer with maximum drawdowns
- Characteristics: High elasticity, high volatility, high returns, high risk.
- Quantitative Directional: Moderate-to-high returns, controlled drawdowns
- Bull markets: Captures trend gains effectively
- Bear markets: Models automatically cut positions to reduce losses
- Characteristics: Smoother return curve; ideal for investors seeking “stable trend returns.”
- Market Neutral / Arbitrage: The most stable strategy type
- Characteristics: Moderate but consistent annual returns, minimal drawdowns; suitable as a core portfolio holding or for corporate cash management.
- Industry trend: Consistently “steady, steady, steady.”
- Crypto VC: Extremely polarized returns
- Top-tier funds: Deliver astronomical IRRs (driven by one or two blockbuster investments)
- Median funds: Offer mediocre performance
- Characteristics: Long investment cycles, high risk, high uncertainty; suitable only for long-term capital with no short-term return expectations.
- Multi-Strategy: The most entrepreneur-friendly option
- Characteristics: Stable, balanced, and risk-controlled; ideal as a beginner’s entry point to crypto funds.
How Should Traditional Entrepreneurs Choose a Crypto Fund?
Many business owners’ first question is: “Which fund should I pick?” But before choosing a fund, you need to ask yourself three key questions:
1. Is this capital “discretionary” or “needed soon”?
- Discretionary capital (no near-term use): Market Neutral, Multi-Strategy
- Capital for growth (willing to accept volatility): Quantitative Directional, Long Only
- Capital for high-risk bets: Crypto VC
The nature of your capital should dictate your strategy—not the other way around.
2. How much volatility can you tolerate?
Can you stomach a maximum drawdown of -70% from a Long Only fund?
If not, this strategy is not for you.
3. Do you want stability, balance, or explosive growth?
Three clear paths:
- Stability: Arbitrage / Market Neutral
- Balance: Multi-Strategy / Quantitative Directional
- Explosive growth: Long Only / Crypto VC
Clarify your goals first, then select the corresponding fund.
Crypto Funds Are Becoming the Next Generation of Hedge Funds
Today’s crypto market is no longer the “wild west” of 2018. It now has:
- ETFs
- Custody services
- Auditing standards
- Regulatory frameworks
- Institutional participation
- Real-world industry applications
- Mature strategy systems
Crypto funds are not about speculation—they represent a “window of opportunity for next-generation asset management strategies.” Over the next five years, crypto funds will play an increasingly important role in entrepreneurs’ asset allocation. Not because they are mysterious, but because they have gone mainstream.
To understand the crypto industry, you don’t need to trade coins yourself. You just need to understand: Who is making money, using what strategies, and based on what logic.
Still Hesitant and Uncertain? Here’s What to Do
If you’ve read this far, you already have a basic understanding of crypto fund strategies. But the real challenge is not “understanding concepts”—it’s answering these critical questions:
- Which funds are actually worth investing in?
- Which strategies align with your capital’s risk profile?
- Which “fine print” in fund documents, structures, and fee schedules could impact your future exits?
- Which risks are controllable, and which are structural?
- Which teams are truly institutional-grade, and which are just “retail traders in institutional clothing”?
These questions have no one-size-fits-all answers, but they directly impact the safety of your capital and the stability of your returns. I have advised many entrepreneurs navigating these dilemmas, and assisted numerous LPs with fund due diligence, structural analysis, clause negotiation, and risk assessment. I’ve discovered a clear pattern:
If you clarify three things before investing—strategy, structure, and terms—your experience with crypto funds will be vastly improved.
If you are considering investing in a crypto fund, comparing strategies across different institutions, or need a professional legal/compliance due diligence report, feel free to contact me. We can discuss your specific situation and needs in detail. Legal professionals can help you filter out “hidden risks” related to: compliance structures, strategy authenticity, operational transparency, fee terms, redemption mechanisms, and more.
You don’t need to struggle through thick PPMs, Supplements, or Subscription Agreements on your own. I can break down complex fund structures into key decision-making points, so you can invest with greater confidence and clarity. If you have relevant needs, please don’t hesitate to reach out.
〈How Can Traditional Entrepreneurs Understand Crypto Funds?〉這篇文章最早發佈於《CoinRank》。
