Bitcoin funds stay defensive as crypto stabilizes

Bitcoin funds are maintaining a cautious stance despite recent signs of stabilization in the broader cryptocurrency market, with most managers expecting further downside through 2026.

Funds stay defensive as downside risks dominate

Institutional managers continue to prioritize capital preservation, citing macroeconomic pressure, weak liquidity, and capital rotation into artificial intelligence and traditional equities.

David Grider of Finality Capital said the firm cut its Bitcoin exposure in October 2025 following what he described as the largest liquidation event in crypto history. The fund remains defensive and expects the market to find a bottom between late third quarter and early fourth quarter of 2026.

Richard Galvin of Digital Asset Capital Management reported holding the highest cash levels since the firm’s launch while maintaining its lowest Bitcoin allocation since 2022. Cosmo Jiang of Pantera Capital also expects the downturn to persist for several more months, consistent with Bitcoin’s historical four-year cycle.

Weak participation and shifting mandates

Activity from limited partners remains subdued, according to Galvin, who said broader adoption across crypto sectors has yet to translate into stronger token performance.

Jack Platts of Hypersphere Ventures said funds are expanding beyond crypto, allocating capital to AI, aerospace, and defense, where returns have been more attractive.

Still, some firms see opportunity in the pullback. Laura Vidiella del Blanco of VanEck said confidence in Bitcoin remains intact among allocators, who increasingly view it as undervalued while waiting for clearer catalysts. Sanat Rao of Monarq Asset Management added that market-neutral strategies continue to draw institutional capital even as directional markets weaken.

Portfolio strategies shift toward resilience

Funds are adjusting portfolios with an emphasis on stability. Finality Capital is deploying derivatives, credit instruments, and hedge strategies under what Grider described as a “bear-market playbook.” Monarq is also focusing on market-neutral trades, while Digital Asset Capital Management is concentrating on projects with proven long-term strength.

Positioning is increasingly tied to fundamentals. Luke Lokhorst of M11 Funds said the firm favors revenue-generating DeFi protocols with durable business models. Jiang added that markets are beginning to reward underlying value rather than speculative momentum, with continued interest in blockchain projects linked to AI.

Capital rotates beyond Bitcoin

Opportunities outside Bitcoin and even beyond crypto are expanding. Hypersphere maintains exposure to AI, energy, and semiconductors, while Arca’s Jeff Dorman reported stronger returns coming from DeFi, tokenization, and stablecoins. Loren Asmus of UTXO Management said his firm continues to hold Bitcoin but with a focus on liquidity and income-generating instruments.

Macro pressures weigh on sentiment

Managers pointed to several macro risks, including higher interest rates, geopolitical tensions, and capital migration into emerging technologies.

Recent data showed U.S. inflation rising to 4.2% in May, the third consecutive monthly increase, driven in part by a surge in energy prices. With the Federal Reserve expected to hold rates in the 3.50% to 3.75% range and maintain a hawkish stance, expectations for rate cuts in 2026 have diminished.

Lokhorst also highlighted corporate borrowing backed by Bitcoin as a potential source of market stress. Some participants mentioned quantum computing as a long-term risk to Bitcoin security, though others argued future upgrades could mitigate that threat.

Fund flows and market data reinforce caution

Recent fund flow data reflects the defensive positioning. Digital asset products recorded $1.67 billion in outflows in early June, marking a third straight week of withdrawals. Total outflows over three weeks reached $4.21 billion.

Bitcoin funds accounted for $1.44 billion of those outflows, reversing much of the year’s inflows. Although a modest $85.85 million inflow was recorded on June 12, it followed sustained selling pressure, underscoring fragile sentiment.

Bitcoin has been consolidating around $64,400 after briefly falling below $60,000. Futures open interest stands near $35.7 billion, significantly below prior highs, suggesting that leverage has been reduced across the market.

Fundamentals gain traction as speculative demand fades

Amid the downturn, segments of the market tied to real revenue are gaining attention. DeFi protocols with fee-sharing models are attracting capital as traders become more selective. Some estimates suggest the DeFi market could reach between $37 billion and $49 billion in 2026, with a small group of leading protocols capturing the majority of value distributed to token holders.

At the same time, capital rotation into AI continues to divert attention from crypto, reinforcing the shift in fund mandates toward sectors showing stronger momentum.

Regulation and macro shifts seen as potential catalysts

Possible recovery drivers include improved global liquidity, lower interest rates, renewed demand through exchange-traded products, and progress on regulation.

The Digital Asset Market Clarity Act, which advanced through the U.S. Senate Banking Committee in May 2026, is seen by some as a key step toward establishing clearer rules for digital assets, though final approval remains pending.

Price outlook remains subdued

Only a handful of managers provided price forecasts, and none expect Bitcoin to exceed $100,000 by the end of 2026.

Platts projected a range between $40,000 and $80,000, while Grider expects a bottom between $45,000 and $55,000, followed by a recovery toward $65,000 to $75,000 by year-end.