Three bear markets compared

Since the CFR Index inception in 2017, the crypto fund industry has experienced three distinct down periods. Each was different in character, severity, and the lessons it taught.

The first thing to notice: in the two severe bear markets (2018 and 2022), the CFR Index significantly outperformed Bitcoin. In 2018, the fund index lost 28.6% while BTC lost 73.6%, a 45-point advantage. In 2022, the advantage was 24 points. This is the core argument for active crypto fund management: in the worst environments, funds lose less.

The second thing: 2025 broke the pattern. The CFR Index slightly underperformed BTC (-10.3% vs -6.3%). But 2025 was a much milder downturn, and the aggregate masks a sharp strategy divide. Quant and multi-strategy funds outperformed BTC. Long-only, FoF, and index products dragged the composite below BTC.

The third thing: severity has declined. The 2018 bear was the most destructive for Bitcoin (-73.6%). The 2022 bear was slightly less severe for BTC (-64.3%) but more destructive for the fund industry because of operational failures. The 2025 downturn was mild by comparison (-6.3% BTC). Whether this declining severity continues depends on whether the market has matured enough to avoid another 2022-style cascade.

The 2018 crash

The 2018 bear market was the simplest of the three. The ICO bubble burst. Bitcoin fell from roughly $19,100 in December 2017 to approximately $3,200 by December 2018, a peak-to-trough decline of about 83%. Altcoins fell even more. The market simply unwound the speculative excess of 2017.

The CFR Index returned -28.6% for the full year. That is a meaningful loss, but it was 45 percentage points better than Bitcoin. How did funds do so much better than BTC? Two reasons. First, many funds had already started taking profits and reducing exposure in early 2018 as valuations became extreme. Second, the bear was a slow grind, not a sudden crash, giving managers time to adjust positions.

The fund industry was much smaller in 2018 (roughly 200-300 active funds versus 800+ today). Infrastructure was limited: no qualified custody, minimal institutional-grade tools, and most funds were small enough that a single bad trade could be existential. An estimated 100+ funds closed during or shortly after the 2018 bear, many of which were ICO-era vehicles that had no reason to exist once the ICO market collapsed.

The 2022 catastrophe

The 2022 bear market was qualitatively different from 2018. It was not just a market drawdown. It was a series of cascading operational and counterparty failures that destroyed billions in investor capital and several major institutions.

The CFR Index returned -40.6% for 2022. Bitcoin fell 64.3%. Once again, funds outperformed BTC, but the 24-point advantage came at a much higher absolute cost. A -40.6% year takes roughly three years of +20% returns to recover from.

The three phases of 2022

Phase 1: Luna/UST collapse (May 2022). The algorithmic stablecoin UST depegged, destroying roughly $60 billion in market value. Three Arrows Capital (3AC), which managed an estimated $10-15 billion at peak, had significant Luna exposure and was unable to meet margin calls. Pantera Capital, by contrast, had a Luna position but sold approximately 80% before the collapse, reportedly booking roughly 10x on the exit. The difference was risk management discipline.

Phase 2: Contagion cascade (June-August 2022). Three Arrows’ insolvency triggered a wave of counterparty failures. Genesis, Voyager, Celsius, and BlockFi all faced massive losses from 3AC exposure. Funds with lending relationships to these counterparties experienced losses not from their trading, but from their counterparty exposure.

Phase 3: FTX collapse (November 2022). The FTX fraud added a third wave of losses. Funds with assets on FTX experienced total loss on those positions regardless of their trading strategy. Multicoin Capital disclosed that approximately 10% of its hedge fund assets were on FTX, contributing to a reported drawdown of roughly 91% from peak.

The 2022 lesson is critical: the deepest losses in a bear market are not caused by the market going down. They are caused by counterparty risk, concentration risk, and leverage risk. These are operational risks that can be mitigated through proper custody, counterparty diversification, and position limits. See our due diligence checklist for the operational questions to ask before investing.

The 2025 downturn

2025 was not a classic bear market. Bitcoin’s full-year decline was only 6.3%. But the year had enough volatility to function as a meaningful stress test, particularly in Q4 when Bitcoin dropped 23.3% and November alone saw a 17.5% decline.

The CFR Index returned -10.3% for the year. The average individual fund returned -7.2%. 63% of reporting funds lost money. These are not catastrophic numbers, but they are a reminder that down years are a normal part of the crypto fund experience, not a rare tail event.

What made 2025 instructive was the sharp strategy differentiation. Quant funds averaged +0.4%. Multi-strategy averaged -2.4%. Fund of funds averaged -13.0%. Long-only averaged -15.3%. Index/tracker products averaged -24.4%. In a mild downturn, the gap between the best and worst strategies was 25 percentage points. In a severe bear, that gap would be even wider.

2025 also demonstrated that even moderate declines can be painful for passive products. Futures-based index trackers lost 24.4% when Bitcoin itself was only down 6.3%. The structural drag of rolling futures contracts amplifies losses in declining markets. If you held a futures-based Bitcoin ETF through 2025, your experience was roughly four times worse than holding spot BTC.

For the complete 2025 analysis, see our annual performance review and best performing funds rankings.

Strategy performance across bear markets

The strategy hierarchy is remarkably consistent across all three down periods. The specific numbers vary, but the ranking stays the same.

The most important column is the median max drawdown. This tells you the worst-case experience for each strategy across its entire history, not just 2025. A quant fund with a -20.7% median max DD is a fundamentally different risk proposition than a long-only fund with a -71.5% median max DD. Both are called “crypto hedge funds.” They are not the same product.

For the full strategy-level analysis, see our strategy comparison.

Bear markets as a business problem

Bear markets don’t just hurt fund performance. They threaten the fund’s existence as a business. This is an underappreciated risk for allocators.

The high-water mark trap. Most crypto funds use a high-water mark: the manager only earns performance fees on net new gains above the previous peak NAV. A fund that loses 40% in a bear market needs to gain 67% just to get back to its high-water mark before earning any performance fees. For a fund with $5 million in annual operating costs and no performance fees, the management fee (typically 1-2% on declining AUM) may not cover costs. The manager faces a choice: operate at a loss while hoping to recover, or shut down.

Redemptions accelerate the problem. In a bear market, investors redeem. Smaller AUM means less management fee revenue. Less revenue means less ability to retain talent and maintain infrastructure. This creates a vicious cycle: the fund gets smaller, weaker, and less able to execute its strategy effectively, which leads to worse performance, which leads to more redemptions.

The shutdown wave. We track 409 dead funds in our database. Significant waves of closures followed both the 2018 and 2022 bear markets. Many of these funds were small (under $20 million AUM) and simply could not sustain operations on a 1-2% management fee during a period with no performance fee income. Some were larger funds that suffered catastrophic losses (Three Arrows Capital, with an estimated $10-15 billion at peak, is the most dramatic example).

For allocators, the implication is clear: when you invest in a crypto fund, you are making an implicit bet that the fund will survive the next bear market. If it doesn’t, you may lose some or all of your capital, regardless of how good the strategy is. Due diligence on the manager’s balance sheet, operating runway, and business model resilience is as important as due diligence on the trading strategy.

How to prepare for the next bear

Select strategies with shallow historical drawdowns. The data is unambiguous: quant funds (-20.7% median max DD) and fund of funds (-18.1%) survive bear markets with the least damage. Long-only (-71.5%) and index/tracker (-78.7%) experience the deepest drawdowns. If your mandate requires capital preservation during bear markets, the strategy choice matters more than the specific manager.

Diversify across managers and custodians. The 2022 crisis taught the industry that counterparty risk can be more destructive than market risk. Funds with assets on FTX lost those assets entirely. Diversifying across multiple custodians, multiple exchanges, and multiple counterparties is not optional for institutional-grade allocation.

Understand the fund’s operating runway. Ask the manager: how many months of operating costs can you cover with management fees alone, at current AUM, with no performance fees? If the answer is less than 12 months, the fund is vulnerable to closure in a prolonged bear. A fund that shuts down during a bear is infinitely worse than one that draws down but survives.

Set a drawdown budget before you invest. Decide in advance what the maximum acceptable drawdown is for your crypto allocation. If it’s 25%, do not invest in long-only strategies (median max DD: -71.5%). If it’s 50%, you have more flexibility but should still avoid the most concentrated vehicles. Match your drawdown budget to the strategy’s historical drawdown profile. See our drawdown analysis for the full data.

Don’t time the exit. Prepare for the drawdown in advance. The worst time to decide your risk tolerance is in the middle of a bear market. By then, your cognitive biases (loss aversion, recency bias) will push you to sell at the bottom. The best allocators decide their risk parameters before they invest and stick to them through the cycle. The ones who redeemed at the bottom of 2022 missed a +69.6% recovery in 2023 and +46.5% in 2024.

FAQ

How much do crypto funds lose in a bear market?

It depends on the severity and the strategy. In the 2022 bear, the CFR Index lost 40.6% while Bitcoin lost 64.3%. In 2018, the Index lost 28.6% vs Bitcoin’s 73.6%. In the milder 2025 downturn, the Index lost 10.3% vs Bitcoin’s 6.3%. By strategy, quant funds have the shallowest drawdowns (-20.7% median max DD since inception) while long-only funds have the deepest (-71.5% median max DD).

Do crypto funds outperform Bitcoin in bear markets?

In the two severe bears (2018, 2022), the CFR Index outperformed Bitcoin by 45 and 24 percentage points respectively. In the milder 2025 downturn, the overall index slightly trailed BTC by 4 points, but quant (+0.4%) and multi-strategy (-2.4%) funds both outperformed Bitcoin (-6.3%). The general pattern: in severe bears, the aggregate fund industry outperforms BTC; in mild downturns, it depends on strategy. See our funds vs. Bitcoin comparison for the full multi-year analysis.

How many crypto funds have closed?

We track 409 dead funds in our database. Significant waves of closures followed both the 2018 and 2022 bear markets. Closures are driven by a combination of poor performance, investor redemptions, inability to cover operating costs on management fees alone, and in some cases catastrophic events like the FTX collapse. The active fund universe is approximately 800+ including VC, hedge funds, and index products.

Which strategy performs best in a crypto bear market?

Algorithmic/quant strategies consistently perform best during downturns. In 2025, quant funds averaged +0.4% while the overall market was negative. Their median since-inception max drawdown is -20.7%, the shallowest of any active strategy. The combination of low beta (0.10), dynamic hedging, and the ability to profit from short positions makes quant strategies the most resilient category. See our strategy comparison for the full ranking.

How long does it take crypto funds to recover from a bear market?

After the 2022 bear (-40.6% Index), the CFR Index returned +69.6% in 2023 and +46.5% in 2024, more than recovering the losses within two years. After the 2018 bear (-28.6%), the recovery took about one year as 2019 returned +37.0%. Recovery times depend on severity: a 25% loss recovers faster (needs +33%) than a 50% loss (needs +100%). Funds that gate redemptions during drawdowns may take longer because capital is locked. See our drawdown analysis for the full recovery math.