In late January, during a period when Bitcoin and Ethereum spot ETFs recorded a net outflow of over $700 million in a single day, Mike Novogratz's Galaxy Group began to plan a new hedge fund with a scale of approximately $100 million. Public information indicates that the fund's capital will be sourced from family offices, high-net-worth individuals, large institutional funds, and Galaxy's own capital, adopting a mixed framework of “up to 30% allocation to crypto tokens, with the remainder directed towards financial services stocks.” In contrast to the current secondary market scenario where prices are under pressure and sentiment is cooling, Galaxy has chosen to design a hedge product against the tide of ETF fund withdrawals, attempting to build a new financial bridge between the crypto narrative and traditional financial capital during a chilly cycle.
Galaxy's Counteraction Amidst $700 Million ETF Outflow
Data released on January 20 served as a cold shower for the market: Bitcoin ETFs saw a net outflow of $483 million in a single day, while Ethereum ETFs experienced a net outflow of $230 million, totaling over $700 million withdrawn from these two types of products regarded as “compliant entry points.” For many participants who rely on ETFs to gauge mainstream capital attitudes, this felt more like a silent vote—under the multiple pressures of high interest rates, declining risk appetite, and fluctuating regulatory expectations, some institutions began to choose to reduce their crypto-related exposure by redeeming ETFs, casting a shadow over the previously optimistic narrative that hoped for “sustained net inflows” from ETFs.
In stark contrast to this passive withdrawal of capital, Galaxy did not continue to shrink but instead announced plans to launch a hedge fund of about $100 million during the same period, clearly adopting a framework of active management, multi-asset, and long-short strategies. ETFs focus on indexing, passive tracking, and liquidity support, while Galaxy's new fund is closer to traditional hedge fund logic—seeking excess returns under a more refined risk budget through timing, stock selection, coin selection, and hedging tools. Choosing this path in a cycle where capital tends to seek safety and balance sheets tighten means that Galaxy is willing to take on additional reputational and strategic risks, also demonstrating that it has not lost long-term faith in crypto and related financial assets.
Behind this counter-selection is, on one hand, a reflection on the simple “long ETF” logic: when the market transitions from a one-sided rise to a period of volatility or even decline, passive holding is prone to endure more severe net value drawdowns; on the other hand, it is a judgment of structural opportunities—despite an overall slowdown in inflows, there may still be targets in niche tracks, individual companies, and tokens that are either undervalued or overvalued. Institutions with sufficient tools and experience can instead seek dual benefits amid large-scale withdrawals: they can bottom-fish quality targets while also hedging and profiting by shorting bubble assets.
The Risk Landscape of 30% Crypto and 70% Financial Stocks
The design of “up to 30% crypto tokens + significant allocation to financial services stocks” essentially builds a buffer for the product with more predictable cash flows and a more mature valuation system outside of the highly volatile crypto exposure. The crypto token portion provides the fund with upside elasticity and participation in the new cycle, while financial services stocks take on the role of smoothing returns and controlling drawdowns. Through this allocation, Galaxy limits the impact of the extreme volatility of a single token on the overall net value within a preset range, allowing the product to be bullish on crypto without being completely hijacked by the emotions of the crypto market.
Compared to a traditional “pure long crypto fund,” this mixed allocation shows more obvious advantages in bear or volatile markets. Pure long products heavily rely on trends; as soon as Bitcoin and mainstream tokens enter a prolonged consolidation or slow decline phase, even if the manager times it well, it is difficult to hedge against systemic downward pressure, and net value drawdowns and volatility often directly reflect the market. Under the “30% crypto + 70% stocks” framework, the manager at least has three levers to adjust: reducing crypto exposure, adjusting duration and style within financial stocks, and using long-short hedging to mitigate systemic risk, which gives the fund the potential to compress drawdowns into a more controllable range in a weak market.
More concretely, Galaxy attempts to find a dynamic balance between “high-volatility themes” and “relatively stable cash flows” in the current intertwining of digital assets and AI narratives. The digital asset portion can revolve around mainstream public chains, infrastructure tokens, and tokens related to AI computing power, data, and storage, bearing the growth imagination and beta returns; financial services stocks may cover brokers, trading platforms, data service providers, and payment companies that benefit from digital transformation and AI applications. On one hand, they are coupled with the crypto and AI cycles; on the other hand, their profit models are closer to traditional companies, quantifiable and assessable through financial reports and regulatory disclosures. Galaxy aims to structure the fund in such a way that it does not abandon the high-growth narratives of crypto and AI while not being overly exposed to the extreme volatility of a single theme.
Family Offices and Galaxy Betting at the Same Table
In terms of target capital composition, this approximately $100 million hedge fund is aimed at a combination of family offices, high-net-worth individuals, large institutions, and Galaxy's own capital. Family offices typically have longer capital cycles and higher risk tolerance but also have strict requirements for drawdown control and strategy explainability; high-net-worth individuals, while pursuing high-growth opportunities, are more concerned about liquidity and transparency; large institutions need to find innovative products that can clearly articulate risk control logic within compliance and reputational frameworks. These combined characteristics dictate that the product cannot simply be a high-beta tool that “longs a certain track,” but must balance stability and aggression in both structure and narrative.
Galaxy announced that it would participate in the investment with its own capital, signaling that it is not merely about “market making” or “scaling up.” When managers put their own capital alongside client funds in the same product, it means they need to bear stronger self-restraint in strategy design, risk control framework, and execution discipline, and it will be interpreted by the outside world as a kind of endorsement of the medium to long-term feasibility of the strategy. For traditional wealth funds that still harbor doubts about crypto assets, this structure of “standing on the same side as the manager” often alleviates concerns more effectively than mere promotion.
Choosing to participate in this round of crypto and AI opportunities through a hedge fund, rather than directly holding Bitcoin or various tokens, aligns more closely with the operational habits of traditional wealth funds. On one hand, the fund format can address a series of backend issues such as custody, compliance, tax, and reporting, providing family offices and institutions with a clearer framework during internal reviews and regulatory communications; on the other hand, hedge funds can “sanitize” part of the extreme volatility and tail risks structurally through long-short, options, and related asset hedging, allowing what ultimately presents itself to the investment committee to be a return curve closer to traditional assets rather than a rollercoaster of a single coin price.
Transitioning from Shutting Down Old Funds to Betting on New Tables
Galaxy did not initially take this more retraceable, mixed allocation path. Earlier, it operated a $175 million Venture Fund I, focusing on high-beta early projects and venture capital. Such funds shone during the previous cycle of liquidity excess and soaring valuations but also exposed old problems of “difficult exits,” “inflated valuations,” and “invisible drawdowns” when the cycle reversed. Ultimately, this Venture Fund I was shut down, becoming a painful example of Galaxy's own experience during the last bull-bear transition, forcing the management team to confront the reality of “high volatility, high discounts, and low recovery rates.”
The company later chose to list on NASDAQ, gradually transitioning from a crypto financial institution primarily focused on proprietary and high-risk assets to a publicly traded company responsible to shareholders and the public market, which also led to a shift in its product line and asset allocation logic. The capital market demands sustainable profitability and explainable risk exposure, rather than relying solely on a single market trend. Against this backdrop, shifting from high-beta venture products to a mixed fund centered on hedging strategies is not just a business adjustment but also a redefinition of corporate governance and brand positioning: from “betting on a few unicorns” to “striving for stable excess returns within quantifiable risks.”
Looking back at Galaxy's history, when it “managed over $10 billion” at its peak, restarting new products with approximately $100 million inevitably gives the outside world a relatively conservative impression of testing the waters. This scale is sufficient to support the operation of a strategy-rich, tool-equipped hedge fund but far from “betting the entire company’s chips.” After experiencing the previous round of blind expansion and passive contraction, Galaxy is clearly more willing to use a controllable scale to validate whether the new strategy is viable before deciding whether to leverage it further. This shift from “gambling” to “tentative offense” also reflects a change in the mindset of the entire crypto financial industry.
Who Pays for the New Filter of Winners and Losers
Galaxy has officially positioned this hedge fund to “identify the winners and losers under the transformation of digital assets and AI.” This means that the targets it focuses on are no longer limited to traditional crypto-native projects but cover a broader “asset landscape reshaped by technology.” Among potential long candidates, it may include underlying public chains, scaling solutions, compliance-friendly infrastructure, and wallet service providers, as well as brokers, trading platforms, data services, and payment companies that actively embrace AI and digital transformation; on the short or hedging side, companies and tokens with hollow narratives, weak profit models, and extreme sensitivity to policies but high valuations are likely to be scrutinized.
In the current intertwining of crypto and AI narratives, certain companies and tokens are naturally suited to be included in a long-short hedging framework. For example, some infrastructure projects with real computing power, data resources, and developer ecosystems may be seen as potential winners of technological dividends; while those tokens that merely pile up AI concepts in white papers and roadshows but lack clear revenue sources and product implementations are more likely to be categorized into the short basket. Similarly, in the traditional financial sector, institutions actively laying out digital asset custody, on-chain settlement, and smart contract applications may occupy a place on the long side, while companies that hold a rejection attitude towards new technologies and whose business structures heavily rely on old fee income may face the risk of being hedged or even systematically shorted.
If this fund performs well in the future, the most directly reinforced narrative may be that “traditional financial tools can efficiently navigate the crypto and AI cycles.” This would bring more fundraising leverage to Galaxy and similar institutions, also psychologically aligning more traditional funds towards the model of “participating in crypto through structured products”; crypto-native capital may be forced to align its strategies and product forms with traditional hedge funds, gradually shedding the rough model of single long and leverage. Conversely, if the fund performs poorly, the voices of skepticism within traditional financial forces regarding crypto will be amplified, and critics may use this to argue that “even complex hedging frameworks struggle to survive in the crypto and AI bubbles,” while the crypto-native camp may leverage this outcome to emphasize that “external capital does not understand the industry,” once again raising the walls and reaffirming their commitment to native principles and long-term holding.
How Far Can Tentative Offensives Go in a Bear Market
Overall, this approximately $100 million “30% crypto + 70% stocks” mixed hedge fund appears to be a symbolic charge under the current sentiment of the crypto market—neither aggressive enough to change the landscape but sufficient to provide a new imaginative template for the market amid significant ETF net outflows and compounded macro pressures. The signal it conveys is that some mature institutions have shifted from “simply betting on price increases” to “capturing winners and losers amid structural volatility,” indicating that the interface between traditional financial tools and crypto assets is being redefined. However, all of this still rests on several unverified premises, including whether the approximately $100 million committed capital is fully in place, the specific ratios and lock-up arrangements of different types of investors, and other key details, which have not yet been disclosed, adding a layer of uncertainty to the path of strategy amplification and replication.
If the market continues to oscillate amid high interest rates and regulatory games, such hedge funds with “limited crypto exposure + a larger proportion of traditional equities” could indeed become the preferred vehicle for traditional capital venturing into crypto and AI themes, thanks to more controllable drawdowns and a more familiar narrative framework. Once a new market cycle truly begins and crypto-native tokens exhibit a trend upward again, the “30% crypto + 70% stocks” structure can share in the upside without putting all chips on a single asset, potentially allowing for dual amplification by capturing traditional companies benefiting from technological dividends within the remaining 70% stock portfolio. Whether Galaxy's bet is a forward-looking layout at the bottom of the cycle or yet another premature offensive attempt in a bear market will require time and performance to answer. Regardless of the outcome, this fund itself has become a mirror for observing the next phase of the game between traditional capital and the crypto world.
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