Generating Alpha: The Digital Asset Hedge Fund Landscape

At Breakpoint 2025, two of crypto's most experienced fund managers pulled back the curtain on how professional investors navigate the volatile digital asset landscape to generate outsized returns. With one fund delivering 60x returns since 2016 and both managers emphasizing research-driven conviction over speculation, the session offered rare insights into institutional crypto investing strategies.

Summary

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The panel brought together Justin Bons, founder and CIO of Cyber Capital—potentially Europe's oldest crypto fund operating since 2016—and Sam Andrew, portfolio manager at North Island Ventures, for a candid discussion about generating alpha in digital asset markets. Moderated by Paula Bahia, head of research at Expeditionary Asset Management, the conversation explored everything from fundamental analysis frameworks to managing the dramatic drawdowns that define crypto market cycles.

What emerged was a picture of an evolving asset class that demands both deep technical understanding and psychological discipline. Both managers emphasized that successful crypto investing requires the ability to change one's mind as the technology evolves, loyalty to thesis rather than tokens, and sophisticated risk management to survive the 50-80% drawdowns that can occur in a single month. The discussion touched on timely topics including the competitive threat from Hyperliquid, the promise of Solana's upcoming Alpenglow upgrade, and why crypto fundamentals remain notoriously difficult to analyze using traditional financial frameworks.

Perhaps most striking was the managers' acknowledgment that despite managing professional funds, they approach crypto with a fundamentally different mindset than traditional hedge funds—accepting multi-year time horizons and extreme volatility as the price of exposure to what they believe is the greatest investment opportunity of a lifetime.

Key Points:

Research-Driven Investment Philosophy

Both fund managers emphasized that generating outsized returns in crypto begins with deep, rigorous research that allows investors to identify the gap between public perception and reality. Sam Andrew described North Island's approach as developing "variant views" through technological analysis, looking for misunderstandings in the market that create investment opportunities. This involves both top-down thematic analysis—identifying broad trends worth investing in—and bottoms-up evaluation of which specific assets best express those themes.

Justin Bons went further, arguing that understanding is what separates investors from gamblers and speculators. "If you invest in something that you don't understand, it's gambling," he stated. He described his own evolution from Bitcoin maximalist to Ethereum advocate to Solana supporter, emphasizing that this intellectual flexibility—loyalty to common sense rather than any particular token—is essential for long-term success. His fund recommends three to five year investment horizons specifically because fundamentals can predict very little in the short and medium term.

The Complexity of Crypto Fundamentals

One of the most nuanced discussions centered on whether traditional fundamental analysis applies to crypto assets. Sam Andrew proposed a spectrum framework: meme coins have no fundamentals, infrastructure tokens (L1s, L2s) have fundamentals that matter somewhat—particularly the trajectory of metrics like REV (fees paid on the network)—while applications increasingly resemble businesses where revenues, fees, and valuation multiples matter significantly.

However, Andrew highlighted three critical problems with crypto fundamentals that don't exist in traditional markets. First, reflexivity: when Solana's price rises, the revenues and KPIs of applications on Solana also rise, even if the underlying hasn't changed—as if Apple's revenue increased just because its stock price went up. Second, extrapolation: real-time data leads investors to assume any inflection point will "hockey stick to the moon." Third, leverage: widespread use of leverage compounds these effects. These dynamics cause token prices to consistently overshoot fundamentals before correcting dramatically.

Managing Drawdowns and Market Cycles

Both managers acknowledged that managing risk is as important as asset selection for generating returns. Andrew noted that an 80% drawdown is "in most cases a career ender"—CEOs and fund managers alike typically don't survive such losses. His background at Blue Mountain Capital, a $22 billion hedge fund, instilled a deep appreciation for understanding market cycles, drawing on the thinking of Howard Marks.

Andrew explained that crypto experiences the same euphoric peaks, valuation disconnects, and leverage buildups as traditional credit cycles—just compressed into much shorter timeframes. He pointed to the recent February market correction as a case study: price appreciation driven by massive ETF inflows ($2 billion of Ethereum alone), rising leverage across the system, and then a spark—Trump's tariff tweet combined with a Binance glitch—that caused a 50% reduction in leverage and corresponding drawdowns across altcoins.

The Hyperliquid Challenge and Solana's Response

The panel addressed what may be the most significant competitive threat to Solana's dominance: Hyperliquid's rise as a perpetuals trading platform. Bons acknowledged frankly that Hyperliquid achieved something Solana currently cannot—a central limit order book with the speed and cancellation order capabilities that traders demand. "If we're being really honest with ourselves, Solana is just not capable of doing this today," he admitted.

However, Bons expressed optimism about Solana's Alpenglow upgrade, which would reduce latency to 150 milliseconds and enable cancellation orders—the technical prerequisites for building a Hyperliquid-style perps exchange on Solana. His thesis rests on composability: Hyperliquid exists in isolation, while a Solana-native solution would integrate with the broader DeFi ecosystem, creating powerful network effects. He cited the historical pattern: Ethereum overtook Bitcoin by being 10x better, Solana overtook Ethereum by being 10x better, and any challenger to Solana would need to clear the same bar.

Portfolio Construction and Position Sizing

Rather than going all-in on any single thesis, both managers emphasized sophisticated portfolio construction. Cyber Capital maintains a large Solana position but also holds Hyperliquid—hedging bets while maintaining conviction. Andrew highlighted the importance of sizing positions correctly, adding when a thesis is corroborated and cutting when it's refuted or prices get ahead of fundamentals.

The discussion revealed that selling the vision to investors is as important as the investment strategy itself. Bons noted that his fund never promises guaranteed returns—instead, they communicate the high volatility and risk while conveying the grand vision: that crypto has the potential to replace most of finance and eventually all of money. "If you believe in that long-term vision, then this is the greatest opportunity of a lifetime."

Facts + Figures

• Cyber Capital, potentially Europe's oldest crypto fund, has been operating since 2016—nearly 10 years in an industry where that represents an eternity
• Initial investors in Cyber Capital are up approximately 60x since the fund's inception
• At its peak, approximately $2 billion worth of Ethereum was being purchased by ETFs, driving significant price appreciation
• The recent market correction saw a roughly 50% reduction in system-wide leverage and corresponding 50% drawdowns in alt indices
• Sam Andrew's previous employer, Blue Mountain Capital, managed $22 billion in assets
• Both funds recommend investment horizons of three to five years to account for crypto's unpredictable cycles
• Solana's upcoming Alpenglow upgrade targets 150 millisecond latency with cancellation order capabilities
• The panel identified three key problems with crypto fundamentals: reflexivity, extrapolation, and leverage
• North Island Ventures manages two VC funds and one liquid fund focused on public crypto assets

Top quotes

"If you invest in something that you don't understand, it's gambling. And this is what separates the investors from the gamblers and the speculators."

"It's important to have loyalty to common sense, to have loyalty to reason and logic and to your thesis, to never have loyalty to a three letter ticker. Because that's tribalism. That's a trap that I think a lot of people fall into in crypto."

"An 80% drawdown is in most cases like a career ender. A CEO of a company whose stock drops 80%, the CEO has fired. A fund manager who experiences something similar, they're going to find their way to the door pretty quickly."

"If we're being really honest with ourselves, Solana is just not capable of doing this today."

"Crypto has the potential to replace most of finance. And I think after that potentially also all of money is a profound vision here. I mean, this is much larger than I think most people even realize."

"When I first got into crypto in 2013, I was a Bitcoiner because I loved Satoshi's writing... Then Ethereum changes my mind... So then Solana became my new home. And I hope I don't have to move again."

"Ethereum overtook Bitcoin because it was 10 times better. And Solana overtook Ethereum because I think it was 10 times better. So I think for anything to overtake Solana now, it needs to be 10 times better."

"We never tell our investors guaranteed return or anything like that. No, it's highly volatile, highly risky. But if you believe in cryptocurrency, if you believe in that long-term vision, then this is the greatest opportunity of a lifetime."

Questions Answered

How do professional crypto fund managers generate outsized returns?

Professional crypto fund managers generate alpha through two primary mechanisms: asset selection and risk management. Asset selection involves deep research to identify category leaders and misunderstood opportunities where public perception differs from reality. This requires both top-down thematic analysis to identify major trends and bottoms-up evaluation of individual tokens. Risk management involves understanding where you are in the market cycle, constructing portfolios with appropriate risk levels, and sizing positions correctly—adding when a thesis is confirmed and cutting when it's refuted.

Do traditional financial fundamentals work in crypto?

Traditional fundamental analysis has limited applicability in crypto due to three unique challenges. First, crypto fundamentals are highly reflexive—when a token's price rises, the underlying metrics like revenue and fees also rise, creating a circular relationship that doesn't exist in traditional markets. Second, investors tend to extrapolate aggressively from real-time data, assuming any positive inflection will continue indefinitely. Third, widespread leverage amplifies both gains and losses. These factors cause token prices to consistently overshoot fundamentals before correcting dramatically.

What time horizon should crypto investors consider?

Both fund managers recommend investment horizons of three to five years for crypto. This extended timeline is necessary because fundamentals can predict very little in the short and medium term—the market is driven more by sentiment, leverage, and reflexive dynamics. Longer horizons allow conviction-based theses to play out and help investors weather the extreme drawdowns (50-80%) that occur regularly in crypto markets. Patience during drawdowns is essential, as short-term volatility often shakes out investors before fundamental improvements materialize.

Is Hyperliquid a threat to Solana's dominance?

Hyperliquid represents a genuine competitive threat to Solana because it achieved something Solana currently cannot: a high-performance central limit order book with fast cancellation orders. This capability has driven significant revenue to Hyperliquid's platform. However, Hyperliquid operates as an isolated application without composability with the broader DeFi ecosystem. Solana's upcoming Alpenglow upgrade—which targets 150ms latency and enables cancellation orders—could allow similar functionality to be built on Solana with full DeFi composability, potentially reclaiming this competitive advantage.

How should investors manage crypto's extreme volatility and drawdowns?

Managing crypto drawdowns requires understanding market cycles and adjusting portfolio risk accordingly. Key indicators include valuation levels relative to fundamentals, amount of leverage in the system, and whether narratives have reached euphoric peaks. When these warning signs appear, professional managers reduce exposure before corrections occur. Position sizing is also critical—adding to positions when a thesis is being confirmed and reducing when prices get ahead of fundamentals or the thesis is refuted. Having a long-term thesis and understanding what you own provides psychological stability during inevitable drawdowns.

Why do some crypto funds recommend such long lock-up periods?

Long lock-up periods (typically three to five years) align investor expectations with the reality of crypto market dynamics. Crypto cycles are unpredictable, and fundamental improvements often take years to materialize in price appreciation. Short-term investors risk selling at cycle lows due to drawdowns that can exceed 80%. By committing to longer horizons, investors can let conviction-based theses play out without being shaken out by volatility. Fund managers also use this time to educate investors about the grand vision—that crypto could replace most of finance—helping them maintain confidence during difficult periods.