At the halfway point of the 2024 crypto cycle, an increasingly clear reality is quietly taking shape in the industry: Most liquidity funds cannot outperform Bitcoin and are losing without any suspense.
This is not only an 'open secret' in the industry but also a deeply structural and logical dilemma. As 'active capital' in the crypto world, liquidity funds should rely on strategies, models, and flexibility to outperform market benchmarks. However, when the benchmark is a single, dominant asset like BTC, it becomes the most challenging peak for them to surpass.
Unlike traditional hedge funds, which commonly benchmark against the S&P 500, the crypto fund industry takes Bitcoin as its 'faith anchor point.' In 2024, Bitcoin's price rose over 110%, and any fund that does not outperform this figure, even if it achieves positive returns, can only be classified as 'mediocre.'
'Altcoins are stagnating, while Bitcoin steadily rises' has become the consensus in the market.
The most obvious signal comes from the continuous rise of Bitcoin's dominance (BTC Dominance). As of now, Bitcoin accounts for 63% of the total market capitalization in the crypto market, far exceeding the 40%-45% at the end of the 2021 bull market.
What does this mean? In a market with a market cap of $3.3 trillion, Bitcoin is steadily and continuously 'eating away' at the value space of all altcoins.
Even if some venture capitalists attempt to construct multi-token composite benchmarks (such as a weighted basket of ETH, SOL, and BNB) to weaken BTC's dominance, in reality, most liquidity funds still passively benchmark against Bitcoin—this is the paradox of liquidity funds.
In other words: Funds may study the entire market, but in the end, they still have to watch BTC's face.
The 'liquidity trap' in the altcoin market.
Pantera's Cosmo Jiang bluntly stated: 'Currently, most directional funds are pessimistic about BTC, especially those heavily invested in L1/L2, DeFi, AI, DePIN, and other sectors, which are almost all 'avoiding the real and striking the virtual.'
But the reality is that the supply and demand for altcoins are severely mismatched.
In 2024, just the top ten new tokens (such as STRK, ENA, JUP, ONDO, etc.) will require $60 billion in buying pressure to maintain their current price;
Each month, over $1 billion in market value of unlocking altcoins;
However, the total scale of liquidity funds in the industry is only $10 billion to $15 billion.
There is a massive gap that cannot be filled.
In this structurally imbalanced situation, even if projects are willing to sell tokens on the OTC market at a 30%-40% discount, they are still 'cold at the door, with few horses.'
Arthur Cheong, founder of Defiance Capital, even expressed pessimism: 'The demand for altcoins is simply not that high. Aside from ETH, there are almost no tokens that can sustain sufficient trading appetite.'
Market-neutral strategies also struggle to escape difficulties.
Market-neutral strategy funds, once thought to traverse bull and bear markets relying on arbitrage logic, have also shown weakness this year. Multiple core KPIs from liquidity funds indicate that while absolute losses have been avoided, returns remain flat or slightly negative.
This is not just a strategic issue but a reflection of changes in market liquidity structure.
Before 2021, the effect of 'a rising tide lifts all boats' allowed many assets to 'hitch a ride on Bitcoin,' but in the current cycle, Bitcoin's 'institutionalization' path has decoupled it from altcoins. It is no longer the leader but the sole riser.
Therefore, if liquidity funds fail to accurately predict BTC, they are almost destined to underperform.
Such realities pose a significant challenge for liquidity funds that rely on actively selecting tokens, rapidly adjusting positions, and event-driven strategies. What they need to do is not only strategy adjustment but also cognitive reconstruction.
Structural analysis from the perspective of Mlion.ai: BTC is the crypto asset 'paid for' by institutional capital.
From Mlion.ai's data dashboard, the core reasons for Bitcoin's excellent performance are as follows:
The ETF effect significantly amplifies capital entry: In the past five months, net inflows into Bitcoin ETFs have exceeded $56 billion, surpassing the total inflows of Nasdaq ETFs (QQQ) during the same period;
Unified narrative and institutional recognition: BTC as the 'digital gold' label has been fully accepted by macro funds; it is no longer a Crypto asset but a part of the Portfolio.
High liquidity, high transparency, and minimal policy ambiguity: For institutions, BTC is the only digital asset that can be allocated within the 'compliant gray area.'
In contrast, altcoins are caught in a quadruple squeeze of high volatility, low trust, strong regulation, and high unlocking. Liquidity funds are not lacking effort, but the very sectors themselves are losing their foundation for winning.
Conclusion: Should crypto liquidity funds accept their fate? It is not surrender but rather a recognition of the cycle structure.
In this cycle, Bitcoin is not the big brother but the 'only one with a ticket.'
The ecosystem of altcoins is rich, but the logic and paths are severely differentiated. Coupled with the pressure of excessive unlocking, the past era of 'Bitcoin rising by 30%, altcoins tripling' has ended.
As a representative of hedge structures, liquidity funds will find it difficult to regain excess returns in this new order unless they reconstruct benchmarks, optimize risk-weight distributions, and adapt to the reality of the 'BTC-ETH dual-core structure.'
Mlion.ai, as a pioneer in on-chain data and AI investment research systems, can assist these liquidity strategy funds in shifting from 'blindly investing in altcoins' to 'structural timing' through:
Macro policy relevance analysis;
Token unlocking pressure simulation;
Tracking mainstream asset capital absorption paths;
Comparison of ETF and on-chain liquidity inflows;
Precisely establishing 'anti-Beta' selection and timing models to find 'survivable arbitrage space' in a BTC-dominated cycle.
Disclaimer: The above content is for information sharing only.