Three years ago, Doug Greenig stopped trading the momentum of the S&P 500 to bet on everything exotic from Malaysian palm oil and Chinese plastic to Colombian interest rates.
Today, $ 820 million founder Florin Court Capital trades in some 350 alternative markets – and none of them felt as wild, profitable or progressive as Bitcoin. Because it is rising past $ 22,000 for the first time, Greenig and a growing number of his peers are trying to take advantage of systematic rules like following trends and price arbitration in the booming crypto world.
“It’s a perfect asset for trend models,” said the former chief risk officer at AHL, now part of Man Group Plc. “An asset where it is more difficult to identify the underlying value may be more able to generate ongoing trends than assets where everyone can quickly agree what they are worth.”
Florin Court, which trades a large number of assets in addition to Bitcoin, is up 0.9% this year, Greenig said.
JPMorgan Chase & Co.’s momentum chasing robots and Nomura Holdings Inc. has been the driving force of the world’s largest digital currency in this record-breaking year.
Read more: Even Robots Join The Bitcoin Craze like Quants Seeking a Margin
Tricky liquidity and a top-to-bottom trading range of more than 500% this year are proving friend and foe to exotic armies seeking to exploit the crypto Wild West – without being killed by Bitcoin’s notorious volatility.
Specialist funds tried to trade digital currencies with the kind of systematic approaches used in stocks and bonds back in mania 2017, but with mixed success. Now more is being brought in as the crypto world begins to mature and investors from Stan Druckenmiller to Paul Tudor Jones embrace it as a portfolio diversifier.
With crypto still lacking on volume portfolios, industry data is scarce. According to a May report by PricewaterhouseCoopers LLP and Elwood, the most common crypto hedge fund strategy is quantitative, accounting for about half of the $ 2 billion industry in 2019.
Quantities see a big opportunity in theory as their trading rules should apply across assets, based on the belief that humans are prone to behavior. Following a trend, for example, is built on the idea that humans tend to follow the herd in everything, from single stocks and oil to the future of Bitcoin.
However, it does not prove so easy in practice.
Just ask Peter Kambolin, who has run his own hedge fund for two decades. The founder of Systematic Alpha Management started a small crypto fund in 2018 that crashed in the process of pulling down the market last year. Now, it only trades a few millions of dollars of the asset class in managed accounts.
When it went to co-play on Bitcoin this year, it was based on a judgment call rather than any systematic signals.
“We saw the impact of huge printing of money from governments around the world and so we made the decision that Bitcoin is likely to benefit the whole,” he said from Miami.
Kambolin has now added a mean reversal signal to its momentum models so that it is not whipped by sharp reversals.
Similar to their plots on the old Wall Street, more hedge funds are experimenting with strategies like Kambolin’s to protect clients from selling – even if it means failing to match the phenomenal returns of digital assets. Bitcoin has increased 215% this year, while cryptocurrency hedge funds are up 136% through November, according to the Eurekahedge index.
Cambrian Asset Management, whose executives hail from the likes of Millennium Management and Winton Capital, also hopes that some downside protection will help the company attract Bitcoin-curious family offices and institutions.
To achieve that, its new crypto fund sets a high bar for expanding its wager and a low one for dialing it down, said co-founder Martin Green. That means entering a 25% Bitcoin slide in March, for example, it was fully hedged. The fund with $ 35 million up is about 120% of this year’s earnings, according to an individual familiar with the issue who asked not to be identified because the proceeds are not public.
“We want to be the party’s designated drivers,” said Green, a technology executive from Mill Valley, California.
For many sizes who left behind their constant paychecks for the crypto world, the wild ride and market inefficiency are part of the appeal. That’s the case for Sam Trabucco, a former trader at Susquehanna International Group’s high-frequency store, now in the crypto trading company Alameda Research.
When trading a proprietary trading startup up to $ 2 billion a day, automated programs are taking advantage of price gaps across exchanges. When data in one course gets glitchy, the startup tries to detect that early and make money from the culprits.
“The crypto markets are more volatile and the platforms are less reliable at some level,” said the 28-year-old Trabucco, from Hong Kong. “There are many more low hanging fruit if you are strategic.”
– With the help of Nishant Kumar