Win by Losing Less: The Case for Hedged Bitcoin Strategies in Volatile Markets
Fortuna Funds
When Bitcoin soared above $126,000 in early October 2025, cryptocurrency enthusiasts celebrated what appeared to be a continuation of the year's strong performance. Just six weeks later, the cryptocurrency had plunged to seven-month lows near $80,000 – a decline of more than 36% off its peak. By the end of November, Bitcoin had recovered somewhat to around $91,000, but the damage was done: investors had experienced on e of the most volatile periods in cryptocurrency markets since 2022.1
What drove this extreme volatility? And more importantly, what lessons can investors draw from this period as they consider cryptocurrency's role in their portfolios?
The Setup: A Strong Year Meets Resistance
Bitcoin entered Q4 2025 on solid footing. The cryptocurrency had benefited from several tailwinds throughout the year:
- Growing institutional adoption through exchange-traded funds
- Increasing acceptance of Bitcoin as a portfolio diversifier
- Macroeconomic conditions that favored alternative assets
- Expanding infrastructure for cryptocurrency custody and trading
By early October, Bitcoin was trading near $114,640,2 having recovered from volatility earlier in the year and many investors hoped it was positioned for a strong finish to the year.
The Catalyst: Multiple Factors Converge
The selloff that began in mid-October stemmed from the convergence of multiple factors.
Geopolitical Tensions
Global geopolitical concerns intensified during October, causing investors to reassess risk across multiple asset classes. When uncertainty rises, investors often reduce exposure to more volatile assets, and cryptocurrencies typically fall into this category. Bitcoin, despite its growing mainstream acceptance, remains viewed by many as a risk-on asset that gets sold during flights to safety.
Regulatory Scrutiny
Increased regulatory focus on cryptocurrency ETF products created uncertainty in the market. While the existence of regulated Bitcoin investment products generally benefits the ecosystem, the regulatory review process itself can introduce short-term uncertainty that weighs on prices.
Record Outflows from Bitcoin Funds
Perhaps most significantly, U.S. spot Bitcoin ETF products experienced record outflows during November 2025, with approximately $3.5-4 billion exiting these funds.3 This represented a significant reversal from the strong inflows that had supported prices earlier in the year.
As with any asset class that finds itself out of favor with investors, fund managers must liquidate positions to meet redemptions. This mechanical selling can exacerbate price declines and create feedback loops where falling prices trigger additional redemptions.
Technical Factors and Leverage Unwinding
As Bitcoin declined, leveraged positions in the cryptocurrency markets faced margin calls, forcing additional selling. The cryptocurrency's price structure showed classic signs of capitulation among short-term holders and investors who had purchased Bitcoin more recently and were more likely to sell at losses when faced with significant drawdowns.
The Crypto Fear & Greed Index, which measures sentiment in cryptocurrency markets, plunged to 11, its lowest reading since late 2022.4 This extreme fear reading indicated widespread panic among cryptocurrency investors and suggested that capitulation selling might be occurring.
Lessons for Cryptocurrency Investors
The late 2025 volatility offers several important lessons.
1. Intramonth Moves Matter
End-of-month returns only tell part of the story. While Bitcoin's October decline was just 4.6%, investors who needed liquidity or faced margin calls during the mid-month selloff experienced much larger losses. Similarly, November's 16.68% monthly decline understated the full 27%+ peak-to-trough drawdown that occurred during the month.5
For investors using leverage or those who might need to access their capital during market stress, these intramonth swings can be devastating.
2. Volatility Works Both Ways
Bitcoin's ability to rally sharply, as it did earlier in 2025, is intrinsically linked to its ability to decline sharply. The same characteristics that enable 50%+ annual gains also enable 30%+ quarterly losses. Investors attracted by Bitcoin's upside potential must be prepared for commensurate downside volatility.
3. Flows Drive Short-Term Prices
The record ETF outflows during November 2025 demonstrated how cryptocurrency prices remain sensitive to flows. While long-term Bitcoin bulls argue that the cryptocurrency's value derives from its fixed supply and network effects, short-term prices are clearly influenced by the buying and selling pressure from investment products.
4. Risk Management Approaches Matter
Different investment opportunities and structures can produce notably different outcomes during periods of volatility. For example, there are ETFs and other funds that employ hedging strategies and have historically experienced more moderate declines relative to direct BTC ownership during sharp drawdowns in periods of heavy selling. These funds and alternative strategies can illustrate differences in how risk-managed strategies can moderate (though not eliminate) losses during volatile periods.
The trade-off, of course, is that some hedged strategies are structured in such a way that they capture less upside during strong rallies. There is no free lunch in investing; protection costs money and limits participation in extreme moves.
5. Emotional Discipline Remains Critical
The Crypto Fear & Greed Index reaching a very low reading of 114 suggests that many investors sold near the lows, potentially locking in substantial losses. The Index is calculated by using various factors including volatility, trading volume, social media sentiment, and Bitcoin dominance. A low value like this has historically been a potential signal of over-selling, and such extreme fear readings have often coincided with bottoms in cryptocurrency markets, though past patterns obviously don't guarantee future results.
Investors who maintained discipline and didn't panic-sell near the lows would have benefited from Bitcoin's subsequent recovery.6 However, maintaining this discipline when facing 30%+ declines is psychologically challenging for many - if not most - investors.
Looking Forward: What Comes Next?
For investors considering cryptocurrency exposure, whether through direct Bitcoin holdings, unhedged ETF products, hedged strategies or other alternative- or indirect-exposures, the late-2025 volatility underscores the importance of appropriate position sizing, understanding your own risk tolerance, considering alternative risk management approaches, and maintaining a long-term perspective.
Like any asset class, Bitcoin’s long-term price trajectory is unknown.The fall 2025 investor experience demonstrated with clarity that Bitcoin remains a highly volatile asset requiring careful consideration and risk management.
Sources:
- ¹ Bloomberg, various dates 9/30/25 through 11/30/25
- 2 Bloomberg, 9/30/25 and 10/31/25
- 3 Estimated market data, November 2025
- 4 The Crypto Fear & Greed Index ranges from 0 (“extreme fear”) to 100 (“extreme greed”), and is intended to reflect crypto market sentiment.
- 5 Bloomberg, BTC spot price drawdown period of 11/2/25 through 11/21/25
- 6 Bloomberg, BTC was trading at $84,162.39 as of 1/30/2026
HBTC does not invest directly in Bitcoin
