Crypto funds raise cash, cut bitcoin bets amid caution

Managers at crypto funds boosted cash holdings and reduced directional bets on bitcoin after a large liquidation event in early October 2025. The adjustment carried into 2026 as firms pointed to macro uncertainty, weaker liquidity and capital rotating into AI and other sectors.

Finality Capital moved to a defensive stance in early October. Partner David Grider described bitcoin as “in the mid-to-late stages of the current market cycle downturn” and does not expect a true market bottom until late Q3 or early Q4 2026. Digital Asset Capital Management reports its directional funds hold the highest cash levels since launch and the lowest bitcoin allocation since 2022. Monarq Asset Management favors market-neutral strategies in the current range-bound market.

Fund-level changes include higher cash allocations, smaller direct bitcoin positions, and greater use of hedges, derivatives and long-short strategies. Managers say they are concentrating on revenue-generating protocols, clear tokenomics and projects with product-market fit. M11 Funds prefers DeFi projects that generate revenue. Pantera Capital is increasing exposure to DeFi and AI-related blockchain projects. Arca identifies DeFi, tokenization and stablecoins as the strongest current blockchain opportunities.

Some allocators remain willing to add at lower prices. VanEck reports many limited partners view bitcoin as discounted and continue to back long-term adoption. Investors at UTXO Management who have lived through prior bear markets are discussing higher allocations. Crypto Insights Group notes institutional interest persists but capital is becoming more selective.

Managers listed risks that could push bitcoin lower: higher interest rates, tighter liquidity, geopolitical tensions and rotation of capital into other fast-growing sectors. Several flagged large debt positions tied to Michael Saylor’s Strategy and potential threats from quantum computing. UTXO Management and Monarq said bitcoin can be upgraded to be quantum-resistant, framing the challenge as governance and coordination rather than an immediate technical collapse.

Year-end views varied. Hypersphere Ventures founder Jack Platts offered a base case near $55,000, a $40,000 bear case and an $80,000 bull case. Finality Capital’s Grider sees a bottom around $45,000-$55,000 before a recovery to $65,000-$75,000 by year-end. Managers who provided targets did not expect bitcoin to finish 2026 above $100,000.

Managers named potential catalysts for renewed demand: lower interest rates, easing geopolitical tensions, improved liquidity, clearer legal rules for crypto and stronger ETF flows. Several funds are widening mandates to areas such as AI, aerospace, health tech and defense tech while keeping strategies that prioritize capital protection.