Professor Coin: Do Managed Crypto Funds Outperform the Market?

Professor Andrew Urquhart is Professor of Finance and Financial Technology and Head of the Department of Finance at Birmingham Business School (BBS).

This is the fourth instalment of the Professor Coin column, in which I bring important insights from published academic literature on cryptocurrencies to the Decrypt readership. In this article, we’ll investigate crypto funds.

Cryptocurrencies have become financialized in recent years. Initially, investors wanting exposure to cryptocurrencies had to buy the coins themselves from exchanges, learn how blockchain works and how to look after their own keys, while also dealing with self-custody of their crypto assets.

At the same time, the only way to get exposure was to hold long the cryptocurrencies themselves—and only being able to go long on Bitcoin was the reason for the price bubble of 2017, according to Nobel Prize winner Robert Shiller.

However, from 2017 cryptocurrency products became introduced to the wider finance community. From the introduction of Bitcoin futures contracts on the CME and CBOE in December 2017, to the futures ETF in October 2021, and the spot ETF listing in January 2024, getting exposure to the cryptocurrency market has never been easier.

Today, investors can get exposure to the market by investing in crypto funds, who hold portfolios consisting of liquid, digital tokens professionally managed by investment teams that typically bring together finance and technology experts. Data from Crypto Fund Research shows that the average asset under management (AUM) of these funds is over $150 million, with fees similar to that of hedge funds (management fees around 2% and performance fees just over 22%).

These funds only invest in cryptocurrencies and aim to time the market on behalf of their clients to outperform the market. But how successful have they been, and what signals do they provide for the market?

The first study to examine the performance of crypto funds was Bianchi and Babiak (2022), who show that the funds generate significantly higher returns and alphas (excess return above a benchmark) compared to passive benchmarks and conventional risk factors. They also demonstrate that this performance cannot be explained through ‘luck’ of the fund managers, suggesting that these funds are outperforming the cryptocurrency market.

However, a follow-up study by Dombrowski et al (2023) show only a few crypto funds have superior skills and given the non-normal (skewed) nature of fund returns, the choice of the performance measure affects the rank order of funds, therefore we should be careful in judging their performance.

A recent study by Conlon et al (2025) shows that funds produce remarkable excess returns while the best performing funds continue to perform well in the future, and that this outperformance is due to the market timing ability of managers.

But, are there certain characteristics of crypto funds that make them more likely to outperform the market? A recent study by Urquhart and Wang (2023) found that crypto funds with managers with previous hedge fund experience achieve significant returns, while managers with a crypto/blockchain background do not perform better. These results indicate that experience of managing funds, no matter the industry, is a key determining factor in the performance of crypto funds.

Therefore, the academic literature suggests that investing in crypto funds is worthwhile, as these funds can outperform the market and certain managers with certain characteristics can deliver above average returns. Nonetheless, with the introduction of Bitcoin and Ethereum spot ETFs in 2024, other spot ETF approvals possibly on the horizon, as well as the Trump administration entering the White House, whether these managed funds continue to outperform the market remains to be seen.

For more information, see:

Bianchi, D., Babiak, M. (2022). On the performance of cryptocurrency funds. Journal of Banking and Finance, 138, 106467.

Conlon, T., De Mingo-López, D. V., Urquhart, A. (2025). Persistence and market timing ability of cryptocurrency funds. Working paper.

Dombrowski, N., Drobetz, W., Momtaz, P. (2023). Performance measure of crypto funds. Economics Letters, 228, 111118.

Shiller, R. J. (2017). What is bitcoin really worth? Don’t even ask. The New York Times.

Urquhart, A., Wang, P. (2023). No Cryptocurrency Experience Required: Managerial Characteristics in Cryptocurrency Fund Performance. Review of Corporate Finance: Vol. 3: No. 4, pp 529-569.