Bitcoin experienced a dizzying 40%+ crash from its all-time high of ~$126,000 in October 2025 to a floor below $72,000 in early February 2026. This meltdown triggered over $16 billion in liquidations in just 10 days, causing a real earthquake in the crypto liquid funds industry.
The Origins of a Historic Crash
Bitcoin’s February 2026 crash resulted from a convergence of institutional and macroeconomic factors that created a true chain reaction.
The Yen Carry Trade: The Unexpected Catalyst
Hong Kong-based hedge funds had taken massive leveraged bets on Bitcoin’s rise. These funds used options linked to Bitcoin ETFs, particularly BlackRock’s IBIT, while financing their positions through low-cost Japanese yen borrowing. When Bitcoin stagnated and the yen strengthened, funding costs exploded, triggering margin calls and forced liquidations that amplified downward pressure.
The « Negative Gamma » Effect of Structured Products
Arthur Hayes, former CEO of BitMEX, identified another trigger: bank hedging linked to structured products backed by spot Bitcoin ETFs. When Bitcoin broke below key levels – like the $78,700 threshold in a structured product linked to Morgan Stanley – dealers had to hedge by selling Bitcoin or futures, creating a self-reinforcing « negative gamma » effect.
Miners Turn to AI
Facing growing demand for data centers dedicated to artificial intelligence, several miners revised their business model. In December 2025, Riot Platforms announced an expanded strategy toward data centers and sold $161 million worth of Bitcoin. The Hash Ribbons indicator issued a warning signal, with the 30-day average hashrate falling below the 60-day average – a sign historically associated with miner stress.
Massive Spot Bitcoin ETF Outflows
U.S. spot Bitcoin ETFs, which had been a buying driver in 2024-2025, became net sellers. Between November 2025 and January 2026, the spot ETF complex recorded approximately $6.2 billion in net outflows, removing crucial buying support. On January 29 alone, investors withdrew nearly $818 million.
2025: A Disguised Bear Market for Altcoins
According to Cosmo Jiang, general partner at Pantera Capital, « 2025 was not a fundamentals-driven year for returns in crypto markets. It was a year where macro factors, positioning, flows, and market structure effects were the dominant drivers. » Bitcoin finished 2025 down approximately 6%, Ethereum ~11%, Solana ~34%, and the broader token universe plunged nearly 60%.
The median token suffered a 79% decline over the year, revealing an extremely concentrated market. Liquid funds that had massively bet on Solana in 2024 saw their returns particularly affected, with some investors reporting losses up to 70%.
Fund Performance: The Great Divergence
Performance data reveals a major gap between different strategic approaches of crypto funds:
| Strategy | 2025 Performance | Early 2026 |
|---|---|---|
| Fundamental long/short | -31% | Struggling |
| Directional (global) | -11% | ~-2% |
| Quant directional | +12% | Variable |
| Market-neutral (global) | +14.6% | +0.5% to +1% |
| BTC market-neutral | +5.7% | Positive |
| ETH market-neutral | +3.6% | Positive |
According to a Presto Labs study, year-end 2025 results confirm this divergence: fundamental funds finished the year at -15.47%, quantitative strategies at +0.11%, and market-neutral strategies at +7.48%. Among smaller managers, emerging market-neutral funds posted an impressive +12.28% return for the year.
Winning Strategies
Market-Neutral Approaches Lead the Way
Market-neutral funds, which seek to profit without depending on market direction, clearly dominated. These funds typically employ arbitrage and covered trading strategies – for example, simultaneously buying and selling correlated assets to exploit price discrepancies. In the chaotic environment of early 2026, these approaches continued to generate modest but positive returns of 0.5% to 1%.
Multi-Strategy Managers
Top-performing managers employ broader multi-strategy approaches, alternating between relative value, volatility arbitrage, and DeFi yield opportunities according to market conditions. This flexibility allows them to quickly adapt to regime changes.
The Shift Toward Fundamentals
After massive Q1 2025 losses, liquid fund managers now focus on tokens with solid fundamentals: cash flows, real usage, and value accumulation mechanisms. This refocusing involves reducing exposure to a smaller number of higher-quality assets.
The Bitcoin Benchmark Debate
A fundamental debate crosses the industry: should we continue to measure liquid fund performance against Bitcoin? Ryan Watkins, founder of Syncracy Capital, argues that « Bitcoin as digital gold is categorically different from a DeFi token that resembles a stock. No one benchmarks equity investors’ returns against gold, so why do it with crypto? »
With increased Bitcoin accessibility via ETFs, active managers are « often explicitly asked not to hold BTC » by their investors. Allocators seek liquid funds for exposure beyond Bitcoin, even beyond Ethereum. This dynamic creates a paradox: funds are evaluated against BTC but aren’t supposed to hold it.
Outlook for 2026
The environment remains challenging, with results increasingly determined by portfolio construction, risk management, and execution rather than overall market trends.
However, the outlook is nuanced:
- Extreme sentiment: The Fear & Greed Index reached levels comparable to the FTX collapse, and speculative leverage has been largely purged.
- Bear market duration: Measured from the late 2024 peak, the current altcoin drawdown aligns with the 2018 and 2022 bear cycles (12 to 14 months), suggesting significant price and time compression has already occurred.
- Institutional adoption: Despite the crash, adoption continues to progress – companies like Robinhood launch tokenized stocks, Stripe develops stablecoin infrastructure, and JPMorgan tokenizes deposits.
- Potential catalysts: Pantera Capital anticipates 2026 marked by consolidation, regulatory compliance, and integration into traditional platforms.
Conclusion
The February 2026 crash constitutes a decisive test for the crypto liquid funds industry. It confirms that in an increasingly institutionalized market, survival and performance depend less on aggressive directional bets than on rigor in risk management, strategy diversification, and execution discipline.
