Analysis: Cryptocurrency liquidity funds underperform, funds shift to high-quality tokens

Cryptocurrency liquidity funds have underperformed since 2025, losing up to 70%, as multiple investors have told me (such data is usually shared internally and among limited partners only). After a difficult quarter 1 in 2025, liquidity fund investors are now focusing on a handful of high-conviction investments. This cycle is one in which fundamentals, rather than market trends, are driving investment decisions.
Most liquidity funds had a strong start to the year, but as financial marekt, which includes cryptocurrencies, has been hit by broader turmoil ranging from tariff policy to macroeconomic uncertainty, its performance has been severely affected. "The first few weeks of the year were very strong, but starting in mid-January, the entire counterfeit products market started to crumble," said Rob Hadick, general partner at Dragonfly. "Bitcoin is down about 10% this year, Solana (SOL) is down about 30%, Ethereum (ETH) is down about 50% and many counterfeit products are worse, making it difficult for funds to find a safe haven."
Hypersphere Ventures founder Jack Platts said most liquidity funds invested heavily in Solana in 2024, which has weighed on their returns so far this year.
Some of the losses are related to expectations. As bitcoin becomes more accessible to institutional investors through ETFs, actively managed fund managers are often explicitly asked not to hold bitcoin. Cosmo Jiang, general partner at Pantera Capital, says investors expect exposure to assets beyond bitcoin and even Ethereum through liquidity funds.