The short answer

In bull markets, Bitcoin usually beats the average crypto hedge fund. In bear markets, crypto hedge funds usually lose less. Over a full cycle, it depends on the strategy, the manager, and whether you’re measuring raw returns or risk-adjusted returns.

If that sounds like a non-answer, it kind of is. But it’s the honest one. Anybody who tells you “funds always beat Bitcoin” or “just buy Bitcoin” is oversimplifying. The data from our database going back to 2017 tells a more nuanced story.

The year-by-year scorecard

Here’s how the average crypto hedge fund return (from our database of 300+ reporting funds) stacked up against Bitcoin each year. The fund numbers come from our CFR Composite Index, which is an equal-weighted average of all funds reporting to us.

The pattern is pretty clear. When Bitcoin rips (2019, 2020, 2024), funds can’t keep up. When Bitcoin crashes (2022), funds still lose money but not as much. And occasionally, like in 2021, funds actually outperform because altcoins and DeFi tokens went on a tear that outpaced BTC.

83% of crypto hedge funds benchmark themselves against Bitcoin, which is revealing. They know it’s the comparison that matters. And most of them, most of the time, don’t beat it on raw returns.

Why “do funds beat Bitcoin” is the wrong question

Here’s where we push back a little. Comparing the average crypto hedge fund to Bitcoin is like comparing the average mutual fund to the S&P 500. Its technically valid and it will almost always make the average fund look bad. But it misses the point of why people hire active managers in the first place.

Nobody hires a market-neutral quant fund to beat Bitcoin in a bull market. They hire it to make 12-18% regardless of what Bitcoin does, with a Sharpe ratio above 2 and a max drawdown under 10%. Different product, different objective. Comparing it to Bitcoin’s 120% year is like criticizing a bond fund for not beating Nvidia.

The real questions allocators should be asking:

1. What is the fund’s actual objective?

A long-only fund that doesn’t beat Bitcoin is probably not earning its fees. A market-neutral fund that makes 15% with low volatility in a year Bitcoin drops 64% is doing exactly what it’s supposed to do. Strategy context matters more than the headline comparison.

2. What are the risk-adjusted returns?

Bitcoin’s Sharpe ratio over a full cycle is often lower than it looks because the volatility is extreme. A fund returning 30% with a Sharpe of 1.8 is arguably a better investment than Bitcoin returning 120% with a Sharpe of 0.8, depending on how much drawdown you can stomach. Our Performance Database calculates Sharpe, Sortino, and 60+ other risk metrics for every fund, making this kind of comparison straightforward.

3. What happens in the drawdowns?

Bitcoin dropped 64% in 2022. It fell from $125,000 to below $68,000 in late 2025. If you’re an allocator who needs to explain a 60% loss to an investment committee or a family office client, “Bitcoin is a great long-term investment” isn’t going to cut it. Funds that lose 20% when Bitcoin loses 60% are delivering something you can’t get by holding BTC.

Performance varies wildly by strategy

Lumping all crypto hedge funds together hides the real story. Here’s how different strategies compared to Bitcoin in 2024, the most recent full year with solid data:

Look at that Sharpe column. Market-neutral funds returned “only” 18.5%, which sounds bad next to Bitcoin’s 120%. But their Sharpe ratios are 2-3x higher than anything else on the list. If you’re building a portfolio, not just making a single bet, that matters a lot.

The long-biased fundamental funds came closest to matching Bitcoin. Reflexive Capital, for example, returned 106% net in 2024, mainly because they held a lot of Bitcoin and other large-cap tokens. But you’re paying 2 and 20 for something you could approximate with a Bitcoin ETF at 0.25% fees. The fee drag is real.

The fee problem is real

This is the uncomfortable part for fund managers. With Bitcoin ETFs now available at 0.12-0.25% expense ratios, the bar for justifying 2% management plus 20% performance fees is higher than it’s ever been.

On a $1 million allocation returning 40%, a typical 2-and-20 fund charges about $28,000 in management fees and $56,000 in performance fees. That’s $84,000 gone. The same allocation in a Bitcoin ETF returning 120% costs about $2,500 in fees. And it made more money.

This doesn’t mean funds are worthless. It means the value proposition has to be something other than “we’ll make you more money than Bitcoin.” It has to be about risk management, downside protection, uncorrelated returns, or access to strategies you can’t replicate with an ETF. If a fund can’t articulate why it exists in a world where Bitcoin ETFs cost 0.25%, that’s a problem.

When crypto hedge funds actually win

Despite everything above, there are real scenarios where funds earn their fees:

Bear markets. In 2022, the average fund lost 42% while Bitcoin lost 64%. That 22-point gap on a $10 million allocation is $2.2 million saved. The fees look a lot more reasonable when you’re losing $4.2 million instead of $6.4 million.

Market-neutral strategies. Funds running basis trades, cross-exchange arb, or funding rate harvesting can generate 10-20% returns with minimal correlation to Bitcoin. These returns don’t exist in any ETF. Pythagoras Investments has been doing this for over a decade with some of the best risk-adjusted returns in the industry.

Altcoin cycles. In 2021, funds outperformed Bitcoin by 92 percentage points because they had exposure to altcoins and DeFi tokens that outpaced BTC. When the market broadens beyond Bitcoin, active management has room to add value.

Access. Some funds offer exposure to pre-launch tokens, private deals, staking yields, and DeFi strategies that individual investors or ETFs can’t easily replicate. The alpha comes from access, not just trade selection.

So what should an allocator do?

We keep coming back to something we hear from allocators: “I don’t want to pay 2 and 20 for crypto beta. I want to pay 2 and 20 for something I can’t get from an ETF.”

A practical framework looks something like this. Get your core crypto exposure through low-cost ETFs (Bitcoin, maybe Ethereum). Then use a satellite allocation to hedge funds that offer something differentiated: market-neutral returns, drawdown protection, or access to opportunities you can’t get elsewhere. Don’t pay hedge fund fees for what is basically a leveraged long Bitcoin position.

Our Performance Database is useful here because you can see the actual BTC correlation for each fund. A fund with 0.95 BTC correlation is basically a leveraged Bitcoin bet with fees on top. A fund with 0.1 BTC correlation is doing something different. That distinction matters more than the headline return number.

FAQ

What percentage of crypto funds beat Bitcoin?

In a big Bitcoin year like 2024, only the top 10-20% of funds beat it on raw returns. In a down or flat year like 2022, most funds beat Bitcoin by losing less. Over a full cycle, it’s somewhere around 30-40% of funds that deliver better cumulative returns, but the number depends on the time window you pick.

Does “beating Bitcoin” even matter for market-neutral funds?

No. A market-neutral fund targeting 12-18% returns with low volatility has nothing to do with Bitcoin’s price. Benchmarking it against BTC is like benchmarking a Treasury bond fund against tech stocks. Different product.

Where can I see fund-vs-Bitcoin data for specific funds?

Our Performance Database calculates BTC correlation, alpha (excess return over Bitcoin), and beta (sensitivity to Bitcoin moves) for every fund with sufficient return history. You can compare any fund’s monthly returns against Bitcoin month by month.