While Bitcoin plummeted from $122,000 to $105,000 on October 10, 2025, hedge funds were playing both sides of the crypto market. A massive $19 billion in leveraged positions got wiped out in hours. Just gone. Poof. The bloodbath happened fast, but smart money wasn’t exactly caught with its pants down.
Traditional hedge funds had been steadily increasing their crypto exposure, with 47% holding digital assets by 2025. They weren’t the wide-eyed optimists of yesteryear though. These folks had strategies. Market-neutral approaches. Hedges upon hedges.
Take the basis trade. Buy spot Bitcoin, short the futures when they’re trading at a premium. Lock in that 8-10% annualized return without directional exposure. Nice and boring – just how institutional investors like it. No need to predict the unpredictable.
Smart money plays both sides—locking in steady returns while leaving the crystal ball gazing to retail gamblers.
Then there’s Kerrisdale’s approach. Long Bitcoin ETFs paired with shorting MicroStrategy stock. MSTR traded at an absurd 2.6x premium to its Bitcoin holdings in March 2024. When that premium compressed, Kerrisdale banked roughly 50% returns. Not too shabby.
Ethereum bears had a field day too. Short positions doubled to $4.19 billion in August. When Bitcoin tanked, Ethereum followed. Those shorts paid off handsomely. The regulatory scrutiny on DeFi and staking only added fuel to their bearish fire. Asset managers’ bullishness on Ethereum’s long-term value, evidenced by their $1.22 billion in long positions, contrasted sharply with hedge funds’ aggressive shorting strategy.
But short squeezes remain a serious threat. With historic short interest in Ethereum, any move above $4,000 could force panicked covering. The market gets weird when everyone rushes for the exit at once.
The October plunge wasn’t just a disaster – it was a capitulation event. A contrarian buy signal for some. A validation for others who’d bet against the hype.
Retail traders? They got crushed, sitting at -$397.5 million net positioning. The little guys always seem to zigging while the market zags.
In crypto, the house doesn’t always win. But professional gamblers with sophisticated strategies? They usually do.
By July 2025, MicroStrategy had substantially increased its Bitcoin holdings to 628,791 BTC from the 214,246 it held in March 2024, demonstrating the company’s continued aggressive accumulation strategy.
