Crypto investors show caution, shift to new strategies after crash

The universe of crypto investment alternatives has expanded dramatically in just a few years and now includes direct cryptocurrency purchases, spot ETFs, derivatives like put and call options and futures, shares in mining and treasury companies, crypto exchanges and infrastructure providers. (Worldspectrum/Pexels).

The recent crypto market bust has left some investors more cautious, after hitting some of the hottest and most-hyped corners of the industry the hardest. It may also provide a boon to emerging strategies that seek to more actively manage risks.

The universe of crypto investment alternatives has expanded dramatically in just a few years and now includes direct cryptocurrency purchases, spot ETFs, derivatives like put and call options and futures, shares in mining and treasury companies, crypto exchanges and infrastructure providers.

But that is also bringing different investment results, with leverage, high valuations and funding concerns among the factors that have hurt various corners of the crypto markets.

“Investment vehicles for bitcoin have exploded across both retail and institutional markets, fundamentally expanding access,” said John D’Agostino, head of strategy at Coinbase Institutional. However, “the nuances matter in terms of how people want to express leverage and to what degree they want to hedge their exposure.”

Buying too high

Bitcoin tumbled as much as 36 per cent from a record US$126,223 on Oct. 6, and remains around 30 per cent below its high. Bitcoin treasury companies, led by Strategy Inc, have suffered even more.

These companies hold a significant portion of their corporate assets in cryptocurrencies as a treasury reserve and often raise capital through stock or debt to acquire more digital assets.

For years, their share prices traded at a premium to the value of the bitcoin they owned and many investors assumed that premium would keep growing forever.

But when bitcoin’s price fell, those premiums collapsed. Strategy’s stock has dropped 54 per cent from bitcoin’s October peak and is down 63 per cent from its mid-July level. Japan’s Metaplanet and a long list of smaller imitators were hit just as hard.

It became “a localized bubble,” said Lyn Alden, founder of Lyn Alden Investment Strategy. “Investors are now a lot more cautious of overpaying for those.”

Mining companies undergo pivot plans

Mining companies like IREN, CleanSpark, Riot, and MARA Holdings, which have been investor favorites, have also faced setbacks. These firms, which secured cheap electricity under long-term contracts, are now pivoting to AI data centers for tech giants.

“Those stocks have been the best performers of the year because they combine two powerful themes: digital assets via their bitcoin exposure and AI,” said Matthew Sigel, portfolio manager of VanEck Onchain Economy ETF, which invests in the crypto ecosystem.

But many saw weakness on concerns about some of these companies’ profitability as they carry heavy debt and constantly need fresh cash to pay for the switch.

“The macro environment turned a little bit and those companies got punished,” Sigel said.

Energy key to growth

Over the next few years, crypto and AI investments are expected to be increasingly intertwined, with crypto infrastructure seen as crucial for addressing power needs.

Morgan Stanley estimates U.S. data centers are facing a power shortfall of 47 gigawatts through 2028, but notes that converting crypto miners could alleviate a significant portion, potentially 10 to 15 GW or more.

“If you want to get a company with exposure to crypto, but also with exposure to an important growth story for the next five or ten years with the development of AI data centers, you’ve got to look at a lot of these miners,” said Brian Dobson, managing director of disruptive technology equity research at Clear Street.

The next wave

For some companies, a solution to poor performance rests with offering actively managed and/or hedged strategies that can outperform during drawdowns.

Sigel’s VanEck Onchain Economy ETF has seen a 32 per cent return since the fund launched in May this year by deliberately underweighting over-leveraged names, he said. “Our conviction is that active management is the way to go in this space because it’s still an immature asset class.”

Activist investor Eric Jackson’s EMJ Crypto Technologies (EMJX) has developed the first actively hedged digital-asset treasury holding bitcoin, ethereum and selective alts, which also generates yield by selling options instead of repeatedly issuing equity or debt.

The company is now live, after SRx Health Solutions SRXH.K announced on Tuesday that it will purchase EMJX, with the combined company to be headed by Jackson. The ticker will switch to EMJX from SRXH after closing, which is expected in the first quarter of 2026.

Through all the noise, bitcoin itself has strengthened its position as the clear leader among currencies, bolstered by strong institutional backing.

Harvard University’s endowment now holds BlackRock’s BLK.N iShares Bitcoin Trust as its largest publicly disclosed stock position. Sovereign wealth funds in Luxembourg, Abu Dhabi and the Czech Republic are building stakes.

It is also a favorite currency among crypto miners.

As more investment choices appear, Coinbase’s D’Agostino argues that the overall market is starting to look like traditional commodities or stocks with regulated exchanges, safe custody options, and precise tools to bet on price direction, volatility, or steady income.

“If you’re comfortable owning commodities, real estate, art, or gold, but crypto still scares you — you’re simply misinformed.”

(Reporting by Karen Brettell in New York; Editing by Alden Bentley and Matthew Lewis)