Bitcoin remains locked in fragile trading conditions as crypto hedge funds scale back risk and boost cash allocations following a sharp market sell-off that has undermined confidence across digital assets, according to a report by the Business Times.
The world’s largest cryptocurrency has settled into a narrow range around the mid-$60,000 level, almost two weeks after a wave of liquidations erased the last gains made following Donald Trump’s re-election. Bitcoin is now down about 50% from its early October peak of nearly $127,000, underscoring the severity of the correction.
Market participants say hedge fund positioning has shifted decisively toward capital preservation. “Bitcoin has found a new range in the mid-60s, as it chops around with no real directional conviction,” said Bohan Jiang, senior derivatives trader at FalconX.
After plunging as much as 13% on 6 February — its steepest single-day drop in almost four years — volatility has begun to ease. Paul Howard, senior director at Wincent, said declining implied volatility and selective demand for spot Bitcoin ETFs suggest leverage has been materially reduced.
The latest pullback follows months of strain in crypto markets. Bitcoin fell 24% in the three months to the end of December, its worst quarterly performance since 2022, as forced liquidations in October damaged sentiment and weighed on trading volumes.
Against this backdrop, crypto hedge funds have increasingly moved to the sidelines. Industry surveys by Crypto Insights Group show that many managers cut exposure in the fourth quarter as risk-reward dynamics deteriorated. While some funds lifted cash balances, others constrained by fully invested mandates rotated into more defensive positions.
The shift has been stark for some managers. Sigil Fund told investors it reduced risk by 40% late last year, marking the first time in its history that it held no exposure to either Bitcoin or Ethereum.
Traditional hedge fund strategies in crypto have also come under pressure. The popular basis trade — buying Bitcoin in the spot market or via ETFs and selling longer-dated futures — has become unprofitable as prices slid and futures premiums compressed, removing a key source of relatively low-risk returns.
With directional conviction lacking, hedge funds are prioritising flexibility. Many are broadening mandates to include crypto-adjacent equities rather than pure token exposure, a notable change from earlier periods when such positions were peripheral.
