Monthly Manager Commentary: February 2025

Multi-Strategy Fund Performance

February was a challenging month for crypto markets, experiencing the largest drawdown in three years. While bitcoin faced significant losses, altcoins bore the brunt of the downturn—SOL dropped 40%, ETH declined 33%, and many other tokens plummeted by as much as 70-80%. The sell-off was driven by a combination of macroeconomic shocks, including Trump’s unexpected tariff announcements targeting Canada, Mexico, China, and the EU, as well as the largest crypto hack in history at ByBit. Although the hack did not directly impact the Fund, it severely dampened market sentiment. The Fund’s underperformance this month was primarily due to its exposure to SOL and ETH, alongside weaker-than-expected results from our trading algorithms. While our models are typically effective at managing downside risk through on-chain analysis and trading volume dynamics, they sometimes struggle to adjust to exogenous, off-chain events like those we saw in February.

	Multi-Strategy Fund	Bitcoin
February Gross Performance	-31.3%	-17.6%

Engineering Insights and Updates

This month, our dev team concentrated its efforts on improving our dynamic selection of the most effective machine learning (ML) strategy for various crypto market conditions. Markets behave differently across phases—trending, volatile, stagnant—and no single strategy excels in all environments. To address this, we have developed a “meta-model” system inspired by modular approaches in artificial general intelligence (AGI). Just as the human brain combines specialized regions (vision, language, etc.), our system integrates diverse strategies (momentum, volatility arbitrage, mean reversion, etc.), each tailored to specific market states. By analyzing real-time metrics like volatility, risk/reward skew, and investor sentiment, the meta-model identifies which strategy aligns best with current conditions, ensuring adaptability and maximizing returns.

Progress focused on refining the meta-model’s ability to learn historical relationships between market states and strategy performance. We tested frameworks such as clustering (grouping similar market environments) and reinforcement learning (training the system to “learn” optimal choices over time). Early results highlight the potential of combining these methods—for example, using clusters to simplify decision-making while allowing the model to adapt weights as markets evolve. Challenges like overfitting and shifting market dynamics are being mitigated through rigorous validation and frequent model updates. This modular approach positions us to consistently capture alpha, as the system evolves alongside the market rather than relying on static assumptions.

Market Commentary

February marked the worst month for crypto markets in three years, as significant pullbacks were driven by macroeconomic turbulence and security concerns.The downturn was fueled by three key events that underscored crypto’s sensitivity to broader financial conditions and investor sentiment.

Early in the month, on a Friday evening, President Trump announced plans to impose 25% tariffs on Canada and Mexico, along with a 10% tariff on Chinese imports. As we’ve highlighted in previous updates, crypto has become a highly liquid global asset class, trading 24/7 and serving as an immediate outlet for investors reacting to macro developments—even when traditional markets are closed. This dynamic played out once again, as risk-off sentiment swept through the crypto space over the weekend. With traditional markets yet to open, funds and macro traders preemptively sold off crypto assets, leading to sharp declines across the sector. Within 24 hours, $2.32 billion in liquidations made this the largest crypto liquidation event in history. Bitcoin tumbled from $104K to $93K, a 10.5% drop, while Ethereum fell 26.5% to $2.5K. Solana followed suit, sliding 22% from $236 to $184. Notably, short-term holders bore the brunt of the losses, while long-term investors remained largely unmoved—continuing a historical trend in which seasoned market participants navigate volatility with greater resilience.

The second major catalyst was the Bybit hack on February 21, 2025. The security breach, which resulted in a staggering $1.5 billion loss, now stands as the largest hack in both crypto and internet history. This unprecedented attack rattled investor confidence, sparking another wave of selling pressure. Bitcoin briefly dipped below $90K, while altcoins suffered even steeper losses. The altcoin market cap recorded one of its most significant single-day devaluations, highlighting the fragility of sentiment-driven assets during crisis events.

To cap off the month, President Trump announced a 25% tariff on the European Union, further amplifying market uncertainty. The news triggered another sharp sell-off, pushing bitcoin down to $83,800—a 21.6% drop from its all-time high. 

Despite these headwinds, it is important to recognize that volatility has always been a defining feature of crypto markets, even in the strongest bull runs. Historically, bitcoin has endured multiple 20%+ corrections before reaching its cycle peaks. In 2013, bitcoin surged 8,660% despite five such pullbacks. Similarly, in 2017, the asset climbed 4,443% while weathering six major drawdowns. The 2021 cycle followed this pattern, with bitcoin rising 858% alongside at least five significant corrections. These periods of retracement serve as healthy market resets, allowing for consolidation before the next leg higher.

Source: CoinMarketCap

Looking ahead, the broader crypto cycle remains intact, with long-term tailwinds continuing to drive growth. A more favorable regulatory environment is emerging, bringing increased clarity and institutional confidence. Demand for digital assets is rising—not just from retail investors, but also from corporations, financial institutions, and even nation-states integrating crypto into their portfolios. Global liquidity remains abundant, providing sustained capital inflows into the sector. While short-term volatility can be unsettling, history suggests the bull market still has room to run before reaching its peak.

Source: Glassnode

Navigating market pullbacks is never easy—and yet, the broader thesis remains unchanged. Adoption is growing, supply is shrinking, global liquidity is rising, and the regulatory environment is rapidly improving. February’s pullback wasn’t the start of a bear market—it was just another expected correction within an ongoing bull cycle. History shows that these pullbacks are normal, healthy, and often the best buying opportunities of the entire cycle. If you have the patience to zoom out, you’ll see that we’re still right on track. And if you have dry powder, now might be the time to put it to work.

The Blockforce Team

Disclaimer:  This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. 

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