How Can Traditional Entrepreneurs Understand Crypto Funds?

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.

Read More: Messari 2026 Crypto Theses: Why Speculation Is No Longer Enough (Part 1)

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〈How Can Traditional Entrepreneurs Understand Crypto Funds?〉這篇文章最早發佈於《CoinRank》。