Quantitative Hedge Funds Are Profiting From The Cryptocurrency Turmoil

A small group of hedge funds are taking advantage of the digital asset market turmoil that has already wiped billions of dollars off the total value of cryptocurrencies.

Some computer-driven funds – which use algorithms to try to predict and trade price movements in crypto and other markets – have reaped gains from rapid declines in assets such as bitcoin and luna. , even as many other investors suffer huge losses.

Among the investors capitalizing on these bets are former Lehman Brothers and Morgan Stanley trader Jay Janer, who is the founding partner of KPTL Arbitrage Management in the Cayman Islands.

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His Appia fund, which bets on rising and falling crypto futures prices as part of its strategy, profited from the $40 billion crash in cryptocurrency luna last month. The vehicle quickly placed short positions – bets on falling prices – to take advantage of the crypto token’s rapid decline. Luna went from over $80 to near zero in a matter of days.

“We made a lot of money with Luna,” Janer said. “The model followed what was happening in the market. It started crashing and the model entered.

Janer estimates that her fund has recouped about two-thirds of Luna’s price drop. He had also bet against bitcoin, the largest cryptocurrency, and another token ether, before switching his short bets to smaller coins.

“It’s wonderful to have such a moving market,” he added. “I don’t know of any other market that moves so much.”

His fund is up around 20% this year, while hedge funds have lost an average of 2.9% in the first five months of this year, according to data group HFR. London-based wealth manager Atitlan Asset Management also profited from taking a small short position in luna futures by its algorithms, which look for tradable market patterns.

For many crypto investors, this year has been extremely painful. Bitcoin has lost 70% of its value since its all-time high last November and the total cryptocurrency market capitalization fell from around $3.2 billion to less than $1 billion during this period. .

Singapore-based Three Arrows Capital is among the leading hedge funds to have suffered such declines – failing to meet margin calls earlier this month after its digital currency bets turned. in vinegar.

But falling prices have provided a lucrative trading opportunity for many quantitative hedge funds, which don’t know whether prices are rising or falling, as long as there is a clear trend in one direction to trade.

In recent years, many large quantitative hedge fund firms have diversified into niche markets such as crypto futures as they try to avoid crowded positioning in traditional markets and improve returns.

Leda Braga’s Systematica Investments is among those making money from the sale of bitcoin and ether, according to a person familiar with its positions. Its $6.7 billion Alternative Markets fund is up 15.9% this year. Systematica declined to comment.

And the London hedge fund Florin Court also benefited. Its founder Doug Greenig, a former chief risk officer for Man Group’s AHL unit, revamped the fund in 2017 to focus on more esoteric markets such as crypto, shipping and Chinese peanut kernels, rather than traditional sectors.

“Our crypto shorts have been strong markets for us recently,” said Greenig, whose fund is up about 15% this year. “There has been a very clear downward trend for months.”

laurence.fletcher@ft.com

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Quantitative Hedge Funds Are Profiting From The Cryptocurrency Turmoil


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