AMA: Crypto Hedge Fund Trader

Hello,

I currently work as a trader at a crypto focused hedge fund. Our primary function is that of a market neutral liquidity provider and we work with our clients to transact in concentrated positions of illiquid, thinly traded coins.

Prior to this role, I was a trader at Goldman in NYC, focused on fixed income. I was there just short of 10 years, so had a variety of roles spanning a large number of products. Education-wise I did the whole top MBA/CFA thing, so can answer questions there also, but would prefer to keep it in the crypto world since that is where there is not a lot of information available to aspiring students as well as professionals in all stages of their career.

Also, just a quick note, please don't ask about comp, crypto HF pays just like any other HF and there is plenty of info on that within WSO and on other easily searched sources.

Thanks, hopefully this will be helpful to those interested in the crypto space.

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Comments (108)

Apr 16, 2018

I have few questions hope they are good ones:
- Do you use any specific exchange or the one requested by your clients?
- Do you have any trading desks taking positions just in case a client might want this coin in the near future?
- On the more HF side, how to you decide to take your positions(can't do ER/DCF model for coin, whats your approach and process).
- How do you size your positions relative to your AUM
- thoughts on USD/BTC being comparable to USD/EUR
- Arbitrage trading between exchanges, any solution possible?
- why leaving goldman after 10 years?

Apr 16, 2018
  • Do you use any specific exchange or the one requested by your clients?
    We go where the liquidity is. Some coins are only listed on one specific exchange, while others can be traded on several exchanges, in which case we look at the flow and figure out where is the most efficient place to execute. Occasionally it makes sense to chop up orders on different exchanges.
  • Do you have any trading desks taking positions just in case a client might want this coin in the near future?
    Very rarely does this happen, the volatility in these markets is way to high to be exposed in this manner unless you have a strong conviction with regards to directional bias
  • On the more HF side, how to you decide to take your positions(can't do ER/DCF model for coin, whats your approach and process).
    We just look at liquidity profiles and trade flow, do not really use valuation models on specific coins since our strategy is market neutral and we don't need the coins we trade to go up or down in value necessarily.
  • How do you size your positions relative to your AUM
    We focus on general risk management principles. Settlement risk can be tricky as every exchange and bank has their own ways of doing things, and things like counterparty exposure and concentration in any specific coin are things we look at
  • thoughts on USD/BTC being comparable to USD/EUR
    No comparison, the volatility profiles and technical as well as fundamental drivers are completely different.
  • Arbitrage trading between exchanges, any solution possible?
    Not 100% what you mean by 'solution' here, but assuming that you are asking how to take the arb out of the system, my answer would be that as the markets develop, arb will naturally fade away. Having said that, it is not as pronounced as you would think, its so insignificant, that this is something we don't even really look at.
  • why leaving goldman after 10 years?
    The traditional markets (especially in the liquidity space) are very inefficient as far as the technology and the piping works. What I mean is that, in 2018, markets are still using SWIFT technology (something that has been around since the 1980s, tickets are still being sent via faxes) and generally the whole infrastructure is in dire need of an overhaul. I really wanted to be at the forefront of technological development in the financial markets, which is why it made sense for me to join like-minded people in the space. Other than that, GS is a great place to work and I would recommend it to anyone who wants to learn about the markets and to see what they can be capable of.
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Apr 16, 2018
Crypto Jones:

We just look at liquidity profiles and trade flow, do not really use valuation models on specific coins since our strategy is market neutral and we don't need the coins we trade to go up

With what instrument do you short cryptocurrencies in order to maintain a market neutral strategy?

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Apr 17, 2018

Especially curious about this as well. As far as I know "thinly" traded coins cannot be shorted anywhere. OP can you give some examples of the illiquid coins you are trading?

Apr 18, 2018
VanillaGorilla:

Especially curious about this as well. As far as I know "thinly" traded coins cannot be shorted anywhere. OP can you give some examples of the illiquid coins you are trading?

The answer is that there isn't any real way of shorting cryptocurrencies. You can short bitcoin via futures but you can't really do anything else.

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Apr 18, 2018

Bitmex, brah. I think there are some other exchanges out there as well. I'm not into shorting/margin trading tho

Apr 19, 2018

Yes, Bitmex does have a good variety of instruments, LedgerX is a good one, a few other ones around. The variety, volume and efficiency of these is still in an infantile stage, but it will develop over time to be what you can expect in traditional markets.

Jul 24, 2018

Bitifinex has it too for all the cryptos they trade, but Bitmex is famous for the leverage you can have.

Apr 19, 2018

No specific instrument, its a variety of things that we do that leave us market neutral, although we are often exposed to risks of certain currencies we trade, its never for a prolonged period of time where it affects the P&L of the book in a significant way. You can often cross hedge using certain correlation profiles of different instruments (crypto and non-crypto) and not necessarily ever have to be short anything outright. I think I will leave it there as the hedging process is complex and could have its own lengthy post which I can consider doing at some point if there is enough interest.

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Apr 20, 2018

If you ever feel you have the time to post it I would be interested to hear about your hedging strategy if you can share it. Thanks for all the info!

Apr 23, 2018

Thanks for your interest, perhaps when I get some time, I will be happy to discuss hedging in its own topic. Good to know that people are curious about this. I do however think that the way we do this now, is going to be so much different a year from now given the rapid development of the derivatives space.

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Apr 23, 2018

How do you define market neutrality? With respect to some index of cryptocurrencies or multiasset index?

Apr 23, 2018

Neutral as it relates to the fund benchmark.

Apr 23, 2018

That's my question. What is the benchmark?

Apr 23, 2018

It is a mix of Fiat and Crypto and is dynamic to the market.

Apr 24, 2018

So you benchmark your fund returns to the return of some composition of Fiat and Crypto? By dynamic, do you mean that your index changes composition when there are shifts in market cap? Hedge fund benchmarks are not more dynamic than that typically...

Apr 26, 2018

Yeah exactly, and the change could be shift in marketcap, or some other metric, and it could occur weekly, or once a quarter or any other frequency as long as it is something that is agreed upon in the PPM previously.

Apr 16, 2018

Do you think prices ever get back up to their highs in January?

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Apr 16, 2018

Yes, for different reasons and without certainty on the timing, but yes.

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Apr 16, 2018

Ugh i wish you had just said no, i'm going to end up FOMO buying more.....

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Apr 16, 2018

.

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Apr 16, 2018

What sources do you use for accessing crypto data?

Apr 16, 2018

Nothing specific really, Cryptowatch is interesting, some of the exchanges have good data. But there is not really a "Bloomberg" of Crypto Data yet, can use a wide variety of different sources depending on what you are looking for.

Apr 16, 2018

Do you code or have some basic foundation with writing scripts? I've been using a pretty cool site that offers crypto data feeds through APIs and was wondering if they were on your radar at all

Apr 16, 2018

my coding skills are very basic, luckily my firm has a staff of top notch engineering talent, but I can't comment as that is outside my knowledge base

Apr 16, 2018

Check out Reddit for specific coins. They should have a subreddit dedicated to them. Each project should have a way to communicate with their community. Many use Telegram. Following the right people on twitter is helpful for information as well.

Apr 16, 2018

I know this may be unanswerable, but do you see coins like BTC eventually being six-figures, or in other words a 1 trillion+ market cap?

Apr 16, 2018

You are correct that this is a very unanswerable question, but I personally like to look at it this way; as an example, lets say that you are in belief that BTC will replace gold as the official store of value and safety asset. So then assuming that all gold ever mined has an approximate USD value of $7.5 trillion, you can say that BTC will be worth X due to the constraint that BTC has a Y cap of minable coins. Then you can apply the same logic to whatever use you believe BTC will be eventually.

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Apr 16, 2018

What?

Apr 16, 2018

He's saying that if you expect bitcoin to replace gold as the official store of value that you can base a price on the implied market cap. For example, if the markets split the "official store of value and safety asset" in two, you have gold with $3.75 trillion and bitcoin with $3.75 trillion.

Due to the way that the bitcoin algorithm was coded, there will only ever be 21 million coins in circulation when they're done being mined 2140. Without taking into consideration time (i.e. there will only be ~17M coins in 2018), assuming any people have lost coins, etc., you can imply a price of 3.75T / 21M = $178,571.43 per coin. You could also assume a certain portion are actually used a currency or in other ways if you want to really pump up the value.

I'm not a believer in bitcoin, and I don't think it's worth that much. But what he's saying isn't crazy at all if you believe it will actually replace gold.

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Apr 16, 2018

edited because he^ beat me to the punch. +1 for you, sir.

But to add to it, this is an example using one use case, a new store of value. Now factor in any other uses that would create demand for BTC, such as remittances, that may further increase the value of BTC.

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Apr 17, 2018

thanks @VanillaGorilla and @The Real Max, thats exactly what I was trying to say, so thanks for doing a better job than me explaining it. I was just using the gold substitute as a pure example of how a lot of people look at potential BTC valuations, not my endorsement as to whether BTC will be a gold substitute or not, so not really sure why I got the MS there.

    • 1
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Apr 16, 2018

What do you think about the future of decentralized exchanges vs. centralized exchanges in crypto?

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Apr 16, 2018

*There are a few pros and cons when thinking about decentralized exchanges. I think the main advantage is that with decentralization you get rid of most of your counterparty risk and eliminate the need for custody. However, the problem is that any exchange would need to build up their liquidity from scratch, they would be competing with established exchanges that have become very easy to use and finally, the mechanism design of a decentralized exchange is extremely difficult.

This article really goes in depth with regards to your question, https://blog.0xproject.com/front-running-griefing-...

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Apr 25, 2018
Crypto Jones:

*There are a few pros and cons when thinking about decentralized exchanges. I think the main advantage is that with decentralization you get rid of most of your counterparty risk and eliminate the need for custody. However, the problem is that any exchange would need to build up their liquidity from scratch, they would be competing with established exchanges that have become very easy to use and finally, the mechanism design of a decentralized exchange is extremely difficult.

This article really goes in depth with regards to your question, https://blog.0xproject.com/front-running-griefing-...

Thank you for your answer. Will check out the article. As for building up liquidity, I can see that being a problem for new decentralized exchanges. However, afaik Binance is planning to eventually launch a decentralized exchange to replace their current exchange and I believe other major exchanges would follow in their steps.

Apr 16, 2018

Would regulation be a good thing for your position in the market? The tax situation is a mess as I'm sure you know well. How is your company thinking about optimizing taxes?

Apr 16, 2018

I think that regulation is a good thing as long as its not going overboard. So far, the collective governing bodies around the world have been doing a good job taking an objective look at cryptos and issuing statements and regs that have generally been good for the markets in my opinion.

Tax situation is fine in my opinion, you make profits, you pay your taxes. Sure everyone does their best to minimize their tax bill using all sorts of strategies as long as they are compliant with the rules, but in general I don't think taxes are more complicated in crypto as they were in any of the traditional funds that I've managed before.

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Apr 16, 2018

Thanks for doing this. I'm writing a paper on cryptocurrency atm so I appreciate your insight.

-How often do you see market manipulation, and what form does it typically take?

-Does your firm or other HF's you're aware of ever work together to drive prices up/down?

-What do you think the regulatory environment in crypto's is going to be like in 6 months, 2 years, etc.?

Apr 16, 2018

-How often do you see market manipulation, and what form does it typically take?
Not particularly, there are definitely a lot of promoters hyping up coins that probably shouldn't be valued very highly, which generates some buying pressure, but nothing really outside of that
-Does your firm or other HF's you're aware of ever work together to drive prices up/down?
no
-What do you think the regulatory environment in crypto's is going to be like in 6 months, 2 years, etc.?
I think that governments will continue to evaluate crypto as something that is only going to grow and respond accordingly. I do not see any overbearing regulations coming in unless there is a Mt. Gox type of event that affects a large number of investors

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Apr 23, 2018
Crypto Jones:

-How often do you see market manipulation, and what form does it typically take?
Not particularly, there are definitely a lot of promoters hyping up coins that probably shouldn't be valued very highly, which generates some buying pressure, but nothing really outside of that

I have a hard time taking you and your hedge fund seriously if you are unaware that crypto markets' lack of regulation makes them full of manipulation. You address pump and dump, but wash trading and tape painting are known to be prevalent. I hope that you are intentionally ignoring this as it is a crucial part of your fund's strategy.

Array

Apr 16, 2018

What metrics do you look at to determine your bid-ask spread? How did you build up enough of a client base/demand to reduce your risk of holding a large amount of exposure to crypto asset prices?

Apr 17, 2018

We primarily look at volume, volatility, size/shape of orderbook and a few other things that affect our ability to effectively hedge our exposure. Not exactly sure what you are asking in the second question, but one client at a time I think is the answer there.

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Apr 16, 2018

thoughts on NANO (formerly XRB)?

    • 1
Apr 17, 2018

No thoughts really, I have no directional bias to any specific coins and still learning the tech behind a lot of these things, so ask me in a year or so, perhaps I will have an outlook on single coins.

    • 1
Apr 16, 2018

Will you sell me long dated puts on a basket of crypto?

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Apr 16, 2018

So if you're a market maker, why would your comp be similar to a HF professional (fee+carry) versus other market makers (spread+commission)?

How much volume do you guys do?

Not sure the secrecy on comp, HF comp is wildly different based on size, strategy, fees, etc.

Apr 16, 2018

You mentioned you create liquidity for tokens that may not have much. How do you accomplish that for a microcap like Rivetz (RVT)? Does your firm try to operate like Bancor does to create liquidity?

Apr 17, 2018

Wow, Rivetz is quite down there on the liquidity depth chart. Any idea why they aren't listed on any of the primary exchanges? I am not familiar with Bancor, perhaps you can tell me how they create liquidity?

Apr 16, 2018

-Do you have a favorite blockchain project?
-What are your thoughts on the impact to the crypto markets of the Mt. Gox settlement selloff?
-Do you do any large volume OTC deals?
-Do you think alt season is upon us?
-Does CrypoCobain know you stole his avatar?

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Apr 17, 2018

-Do you have a favorite blockchain project?

Not really, we don't necessarily endorse anything or have any conviction views, but I think Firelotto is a cool idea
-What are your thoughts on the impact to the crypto markets of the Mt. Gox settlement selloff?
They're definitely very visible, I wanted to post a chart, but my low level of bananas won't let me do external link
-Do you do any large volume OTC deals?
all day
-Do you think alt season is upon us?
not necessarily, but a lot of other market participants think so, which benefits our business
-Does CrypoCobain know you stole his avatar?
ah, I had no idea, I just googled 'bitcoin avatar' and this is the best one the had

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Apr 17, 2018

This chart? This shows supposed correlation of Mt. Gox selloffs and market price declines.

https://davidgerard.co.uk/blockchain/2018/03/09/mt-gox-crashes-bitcoin-a-second-time-and-theres-more-to-come/mt-gox-dumps-vs-price/

What worries me most is the trustee has stated in their report that they are consulting with the court to "determine further sale of BTC and BCC". Should still have 160k+ BTC left to dump. However, Karpeles has stated he wants to give back the remaining BTC through civil rehabilitation. Here's hoping that happens.

Edit: Just more thoughts for conversation.... I'm not sure why they didn't OTC sell this BTC, or at least scale it out in smaller chunks on a longer time frame selling into strength to get a higher avg price, unless they were also shorting the market.

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Apr 16, 2018

Thanks for doing this! Three questions:
1). I'm curious why you decided to get your MBA even though you were a trader at Goldman? It is my understanding that most traders don't need to go back to graduate school in order to move the ranks as moving up the ladder is based on performance.(assuming that was your reason)

2). Given that you been in the business for a decade, what are your thoughts on a long-term career in S&T(sales or trading) considering desks are becoming more automated, pending recession, and VOL/prop trading is not what it used to be.
* I'm going to top BB this summer for an S&T internship and really trying to grapple with what skills I will gain for the future and if I can make this a long-term career(10+ years).

3). This is a follow up to question #2, Are most traders or salespersons leaving banking after 5-7 years to HF? Curious to know the trend and what you've seen over the past 2-5 years in the industry.

Apr 17, 2018

1). I'm curious why you decided to get your MBA even though you were a trader at Goldman? It is my understanding that most traders don't need to go back to graduate school in order to move the ranks as moving up the ladder is based on performance.(assuming that was your reason)
I was about 5 years into GS career and needed a vacation

2). Given that you been in the business for a decade, what are your thoughts on a long-term career in S&T(sales or trading) considering desks are becoming more automated, pending recession, and VOL/prop trading is not what it used to be.
* I'm going to top BB this summer for an S&T internship and really trying to grapple with what skills I will gain for the future and if I can make this a long-term career(10+ years).
I think doing an analyst stint at an S&T desk can still be very good experience, you can't really replicate an institutional trading environment otherwise. I think you can still gain a very deep understanding of how the financial markets work in the shortest amount of time possible while also picking up skills like coding, pricing, mental math as well as learning how to communicate very complex information in a very succinct and clear way while under pressure, which in my opinion is probably the most underrated skill for people who want to be professional traders.

3). This is a follow up to question #2, Are most traders or salespersons leaving banking after 5-7 years to HF? Curious to know the trend and what you've seen over the past 2-5 years in the industry.
Hard to say, trends can differ from one product to the next, HF strategies pop-up and die-down with market cycles, but those who want to go the buy side route and are interested in being PMs always figure out a way.

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Apr 17, 2018

How do you deal with forks? Pull out the market or research in adv a lot?
Any issues with exchanges going down for a small amount of time?
Risk management processes if a coin goes to zero or 70% move? Exchange hack?
Do the traders know all the cross settlement issues off by heart?
Have you had to actively market the fund to institutions?
Any non electric trades? If so with no clearer any issues RE settlement, fill issues?
Rough balance sheet? >50 mio
East/ West coast?

Off topic- any thoughts if CC goes to shit for a while any thoughts, if this doesn't pan out on where you'd like to settle, i.e non trading role in the space or?

    • 1
Apr 17, 2018

How do you deal with forks? Pull out the market or research in adv a lot?
We look at forks on a case by case basis, if we feel that there is a good opportunity there, we will definitely research, and if it is a major coin then we would recover the forked asset and liquidate to improve our nav, if its a smaller forked asset then weigh the added NAV value against the custodial risk
Any issues with exchanges going down for a small amount of time?
It's mildly annoying, but par for the course
Risk management processes if a coin goes to zero or 70% move? Exchange hack?
Difficult to say here, without revealing specific risk management processes, so no comment
Do the traders know all the cross settlement issues off by heart?
After you trade something more than once, you typically remember any specific settlement issues, especially if they are problematic.
Have you had to actively market the fund to institutions?
Yes, majority of our clients are institutional
Any non electric trades? If so with no clearer any issues RE settlement, fill issues?
Not sure what an electric trade is, feel free to clarify and I can try to answer
Rough balance sheet? >50 mio
no comment
East/ West coast?
Bay Area*

Off topic- any thoughts if CC goes to shit for a while any thoughts, if this doesn't pan out on where you'd like to settle, i.e non trading role in the space or?
I am a true believer in CC for the long term, short term volatility does not bother me much, its just part of being a trader, but I have no plans to leave the space anytime soon

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Apr 18, 2018

Many thanks for the reply, I'm looking to potentially enter the space so much appreciated.

Apr 17, 2018

What are some top twitter accounts you follow for crypto news and insights?

Best Response
Apr 19, 2018

Sooooo trading shitcoins on price action? But at the same time, helping your clients move out of large positions on thin-books (which is really thin in Crypto world) sounds like market manipulation so you can sell into fabricated demand. Institutional investors in this case are probably VC's or other hedge funds that have stakes in shitty projects and want to off-load failed project coins to which there very little volume (e.g. Blockcaps' dogs).

Your description as to what it Is that your firm does is cryptic. I've been trying to figure it out all day ;)

Could you speak to organizational structure and the positions that your firm staffs? With what I think your describing, you don't need anything other than maybe TradingView Pro / Coinigy and MAYBE an automated trade bot to prop up an order book / manipulate volume profiles. But from a staffing perspective, just an institutional sales guy to source cheap coins, a tech guy to orchestrate the market and a few other guys to trade price action to keep the doors open between deals and manage the books.

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Apr 20, 2018

You are correct that our role is to help clients move in and out of positions. Not sure what you are saying by "fabricated demand", for example, when a client wants to sell, we just take their position and sell it , while limiting market impact as much as possible.

The firm is simple, a group of traders and developers as we develop all of our tech internally.

Apr 17, 2018

I wanted to understand what financial instruments you use. I currently trade derivatives on Bitmex but I am guessing that your firm goes off of the CME futures market. In that case, do you trade only bitcoin derivatives or do you also trade alt-coin derivatives.

In terms of market due-diligence, pulling the data for crypto price fluctuations is fairly difficult since there aren't any good resources. I'm guessing this plays to the advantage of early funds?

How does the firm deal with mass "whale" manipulation in terms of trades?

Apr 20, 2018

I wanted to understand what financial instruments you use. I currently trade derivatives on Bitmex but I am guessing that your firm goes off of the CME futures market. In that case, do you trade only bitcoin derivatives or do you also trade alt-coin derivatives.
We generally stay away from the derivatives. The way those markets look at this point in time do not really serve our purposes, so our use of them is limited.
In terms of market due-diligence, pulling the data for crypto price fluctuations is fairly difficult since there aren't any good resources. I'm guessing this plays to the advantage of early funds?
I think that between the major exchanges, there are enough tools available to gauge how the market looks, given that we are not directional in nature, we don't really look at trends that are past more than a week or so, for which there are plenty of resources.
How does the firm deal with mass "whale" manipulation in terms of trades?
I don't think this is as pronounced as you would think. The whales typically do not like making a disturbance, so they go through great lengths to ensure that their trades have minimal market impact through a variety of methods. I don't think that you would see someone come in one day and just drop a 15% market order in one go. The execution is usually much more structured for minimal impact.

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Apr 18, 2018

How much did the fund return to investors/partners since the start?

You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.

Apr 18, 2018

are you paid in USD or in coins? if coins, which one(s) are you paid in?

    • 1
Apr 18, 2018

Dedline is right, I have no idea what you do and you ignored my q's.

Sorry if I'm wrong but it seems like you make commissions by providing liquidity, so probably servicing funds trading more sophisticated coins?

Thoughts on: https://www.reuters.com/article/us-crypto-currency...

    • 2
Apr 19, 2018

I'm still amazed we're seeing an AMA on this topic. power to this dude for capitalizing on it, but wow.

also, really curious to see if he is, in fact, paid in USD instead of a cryptocurrency.

Apr 20, 2018

I'm still amazed we're seeing an AMA on this topic. power to this dude for capitalizing on it, but wow.

also, really curious to see if he is, in fact, paid in USD instead of a cryptocurrency.

Thanks, I really wanted to do the AMA for a while, a lot of my friends and acquaintances ask me about the industry all the time and there is not much info out there from any insiders on the finance side. I definitely do not have all the answers and am learning as well, but hopefully you are all picking up some useful info from this AMA.

Regarding how I get paid, like I said in the very first post, I would prefer not to touch on anything comp related, so apologize if this is something you are genuinely curious about it.

    • 1
Apr 20, 2018

We don't make commissions, but we take a spread to the spot price. We try to price in all of the risks into that spread, but given the volatility of these markets, sometimes the price action goes against us as we try to hedge, so its not quite as easy as just earning a guaranteed commission.

Regarding, the article, it is true, the majority of crypto funds are down year to date. However, the top losers are for the most part directional funds that take views on specific coins, so when the broader markets drop, these funds' performance is correlated with them. That's why I think its good to be a market maker in volatile markets because it is possible to outperform as long as there is volatility, but having said that, we probably will never achieve astronomical returns like the ones a lot of the directional funds reported for 2017 either, so its a trade off in that regard.

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Apr 18, 2018

How do you make sure that girls at the bar know that you trade cryptocurrencies for a living?

    • 1
Apr 20, 2018

I wear the glasses in my avatar pic.

    • 1
Apr 18, 2018

Do you get a lot of annoying responses when you explain to people what you do? Like, do dudes at the bar always try to bullshit you about how they're cryptotrading entrepreneurs too? Or do people automatically assume you're just some guy that bought a bitcoin once back in '09 and doesn't actually work for a living?

Apr 20, 2018

Not sure how old you think I am, but I am very rarely at bars, and when I am, I try not to talk work too much. Much easier in SF where I never have to wear formal clothing, so you just blend in.

Apr 18, 2018

I heard that Bobby Axelrod wants to hide $2bn in assets through cryptocurrency, because the government is close to scooping up all of his money. Thoughts?

    • 1
Apr 18, 2018

Sounds like he needs to get into Monero and set up shop in Seychelles.

Apr 20, 2018

Hah, I actually wouldn't be surprised if they do a Crypto episode at some point.

Apr 19, 2018

I believe the biggest problem in the crypto space are people not being able to value anything properly. Don't get me wrong, the markets are inefficient in the stock exchanges, for example, but at least there are generally accepted ways of valuating securities to some extent.

You mentioned in another comment you go off liquidity profiles - do you look for unique value propositions as well?

IE would your fund care is a coin has long run potential (which only a few do, but might not perform as well in the short term such as XMR, NANO, ARK, etc), vs a coin that will be profitable in the short term (possibly) but not in the long term (since it'll fail eventually, like BCH, ETC, TRX, XVG, etc)?

Apr 20, 2018

Think that I was pretty clear in the posts so far, but as a market maker, we do not invest for the long term on any specific coin at all, so liquidity profiles are our bread and butter as far as evaluating trades go.

As far as how valuations of different crypto companies and currencies goes for their long run potential? I don't think anyone really has this figured out, in my opinion I think it will be a long time before there are any widely accepted methods of valuation in the crypto space. Best example being, when I suggested one basic BTC valuation method earlier in this thread, I got MS all over it, so taking that into consideration, you can see that there are no widely accepted methods. Would be happy to hear if any other users have valuation methods they can share.

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Apr 20, 2018

Hello, thank you for your informative post and for answering our questions.

What are your thoughts on an aspiring trader going into the cryptocurrency world straight out of undergrad as opposed to starting at S&T or a prop trading firm?

Assuming the individual is fairly certain (88.69420%) he wants to get into the industry early on during the growth phase. Also note the individual has had previous trading and market-making/fintech internships. As well he has taken part in implementing an ICO ($100+ MM raised).

He has made roughly the same amount trading cryptocurrencies than he would as a FT analyst (hugely due to pure luck during summer boom). To him, it seems like a trade-off of interest in an volatile, developing industry vs. experience/social connections/prestige in a structured environment. With that said, this individual doesn't give a shit about prestige.

However, would choosing to go into cryptocurrency trading/business development/financial services pigeon-hole him and limit future opportunities in other industries if he does happen to want to transition?

Thanks!

Apr 21, 2018

Hello, thank you for your informative post and for answering our questions.

What are your thoughts on an aspiring trader going into the cryptocurrency world straight out of undergrad as opposed to starting at S&T or a prop trading firm?

Assuming the individual is fairly certain (88.69420%) he wants to get into the industry early on during the growth phase. Also note the individual has had previous trading and market-making/fintech internships. As well he has taken part in implementing an ICO ($100+ MM raised).

He has made roughly the same amount trading cryptocurrencies than he would as a FT analyst (hugely due to pure luck during summer boom). To him, it seems like a trade-off of interest in an volatile, developing industry vs. experience/social connections/prestige in a structured environment. With that said, this individual doesn't give a shit about prestige.

However, would choosing to go into cryptocurrency trading/business development/financial services pigeon-hole him and limit future opportunities in other industries if he does happen to want to transition?
if you can find a position where you can learn to trade crypto, then go for it. Just keep in mind, the most important thing is that you can work for someone who you can directly learn from. Unfortunately the only big crypto trading desks (Circle, Cumberland, etc) typically hire experienced traders who understand dynamics of institutional trading, and I am not sure exactly what their outlook is on taking on junior traders. Perhaps S&T or established prop would be a good way to go, because the two most important things you can learn to be a successful crypto trader is buy/sell dynamics in an institutional environment and how all of the post-trade back-office stuff works (i.e. operations, accounting, risk, etc.) among some of the things I listed earlier in the thread.

other than that, your experience would definitely give you a leg up, (particularly realizing that most of your success is luck, you would be surprised how many young traders think they are "geniuses" because of their 4Q 2017 success)

I wouldn't worry about pigeon-holing too much, this early in your career. A good trader can trade most anything anyway.

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Apr 21, 2018

Very insightful. Thanks again Crypto Jones

Apr 22, 2018

-What are your thoughts on smart contracts? On that note, any opinion on Chainlink? I could see this potentially automating a bunch of back office functions for OTC derivatives and swaps, but curious what you think.

-Do you anticipate a futures market for Litecoin, Ethereum, or others?

How I passed all the CFA Program exams: https://www.youtube.com/watch?v=2DUdnYkojtk&t=37s

Apr 23, 2018

No direct opinion on Chainlink as a platform, however, I will say that back office automation is most definitely coming as it relates to the financial sector. There are several companies working on this (Chainlink being on of them), I am not sure who will emerge on top as I am no expert on the underlying tech, but there will become a point where revenues at the big banks will be challenged and the executives will have no choice but to go the cost cutting route to maintain profit margins. Once they will see that using blockchain technology is a cost effective and efficient way to replace the current back office infrastructure, these companies will do well. I guess its going to depend on a mix of who has best tech and ability to execute on its sales pitch.

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Apr 24, 2018

If i'm an institutional buyer can i short large quantities? Also how can a retail trader short? Where do you monitor for news flow information?

Apr 26, 2018

Shorting is still incredibly difficult in these markets. If you want to do an outright short, it is more or less impossible, if you want to short via underweighing some sort of benchmark, then you can do it, but if you are looking to borrow anything in the crypto space, the rates are astronomical.

Apr 26, 2018

What is the best desk to work for in Sales & Trading, to stand the best chance at jumping to the crypto industry?

Apr 26, 2018

Interesting question, I think I would go with anything FICC, particularly FX would have a lot of similarities.

Apr 26, 2018

For an Analyst who is going to start working in that desk, how should one prepare him/herself for jumping over to crypto? I.e. any new skills one should learn? recruiters to speak to?

Apr 26, 2018

I think a lot of the main skills that you need to learn, I mentioned above in a couple of different answers, so take a read up there. As far as how to prepare, I would learn everything about how Bitcoin and crypto technology works (don't worry about ETH or anything else as there is another level of complexity, just focus on BTC). There is a good free course on coursera from Princeton that I used to get on top of all this stuff when I was still working in traditional markets, would recommend you go through that. Then just try to meet as many people in the crypto space as you can and if you're also learning about the tech on your own, you can ask questions about things you may/may not understand to show your genuine interest. Do this for about a year/year and a half, and you should be well positioned to start inquiring about actual positions when you have some sort of network and some sort of knowledge. Not sure how recruiters really work in this space, we're hiring people right now and its all word of mouth.

P.S. Don't sleep on the operations side of trading. Its easy to not care as much about this stuff at a BB or mid-size shop as you have entire ops departments to handle that stuff. Make sure you understand everything about what happens post trade with operations and accounting, you can be the best trader and calculate your risk/reward with godly precision, but if you fuck up on the ops or accounting side, it will wipe out your trading prowess faster than you can think of an excuse as to what went wrong. The best traders always have a deep understanding of post trade issues and how different types of mistakes can affect your risk profile.

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Apr 26, 2018

Thank you very much for the advice & spending your time answering our questions! All the best with bitcoin.

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Jul 23, 2018

.

Jul 23, 2018

I have never been a true prop trader, but in my opinion a prop trader is a prop trader, no matter what the product that he/she focuses on. You could definitely design an FX or Crypto trading program with almost identical Risk/Reward profiles. I think, the more important question that you need to ask yourself is "why crypto", "do I want to learn the tech" etc.

As far as being pingeonholed goes, I wouldn't quite look at it like that. I will try to draw parallels between the FX and crypto markets as an example. What both asset classes have in common is that the fundamental analysis around them is very macro-focused, while the way they trade and the supply/demand economics around them (more FX than Crypto) are, instead, very technical.

What I am saying is that as someone who understands, geopolitics and other macro themes through trading these products, you will never be truly pigeon holed as those skills will lead to a wide variety of jobs in finance or in certain other industries. The technical skillset will allow you to trade most anything in the future as well.

Those are my 2 cents on the topic, hope its somewhat helpful.

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Jul 23, 2018

Thank you. That was very helpful.

I view it as a way to get into an emerging asset class at the very earliest stages. Should it continue to grow and gain legitimacy than I would have unique knowledge and experience - a once in a generation opportunity as well as some presumably very in demand skills.

My concern is very much around the transferability of the knowledge and skills I would learn but what I understand from your comment is that would not be much of an issue. Is that correct?

Jul 23, 2018

Correct, I would not worry about it.
As long as you are constantly learning, you are not in the wrong place.

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Jul 24, 2018

Thank you. As for constantly learning, do you recommend doing an MBA or CFA if I am unsure of wanting to stay in trading forever.

Jul 29, 2018

My opinion on the MBA is that in today's day and age you only want to use it for 2 puposes.
a) You are experiencing burnout and desperately need 1-2 years away from the corporate world. (if you aren't sure if this is the case, it is not the case. If you are experiencing this, you will know it 100%).
b) You are looking to switch careers.
I personally went to do MBA because I was 5 years into doing an analyst program followed by two years as an associate at a BB and needed to get away. MBA is a good time, you will meet amazing people (both classmates and professors), have great recruiting opportunities (assuming you get into a good school) and generally have a chance to relax. As far as the academic rigor of it, there is nothing you can't learn online for cheap or free that you can only get at the MBA. MBA may be slightly better in that regard if you have professors that can directly relate material to their own professional experiences.
CFA I think is the way to go. By the time you are done with level 3, you have studied, in depth, just about everything that touches finance, more or less. As a charterholder you also just get the respect from fellow charterholders who know what you went through to study for the exams. Although not a requirement by any means at most jobs, I would say that I had a much better understanding of the concepts discussed and put into practice during my BB years, particularly during my time as a PM.

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Jul 24, 2018

I got a little big headed last fall, fancying myself some sort of investor by putting money down and seeing it go up 300x in a matter of months. December and the following months of 2018 really taught me a lesson that it was a rising tide and not any of the trades that really filled my account.

What would your suggestion be for someone looking to learn more about the market to navigate it and manage a personal portfolio?

Also, how would one go from IB to cryptos? its sort fo a wildest and there are not any certifications and such, so what does someone need to make it in cryptos professionally?

Jul 29, 2018

The personal portfolio question is a bit broad, so not sure how to answer. I guess the answer is, read as much as possible about investing in a sector that interests you and go from there.

IB to crypto is a very un-natural jump. For the most part, there are no widely accepted valuation models in the crypto space. You don't have things like DCF, comparable transactions, comparable companies, liquidation value and whatever else you IB folk use nowadays. The valuation of businesses comes as an amalgamation of two methods:
1) Deep understanding of how the technology works and how different crypto companies apply their version of this technology to a real world issue.
2) Following a VC model of funding everything under the sun, hoping that you get 1 or 2 100x plays within a reasonable time.

To make it in crypto professionally, I would recommend starting to read about how the tech works. Start with the Bitcoin white paper by Satoshi. Then check out this
Princeton Coursera class
https://www.reddit.com/r/Bitcoin/comments/7m0gu3/s... which is accompanied by this textbook.
There is about 20 hours of video and the book is quite large, the class is a couple years old, but still I think is the best primer on how blockchain and crypto works on a very technical level.

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Sep 10, 2018
Crypto Jones:

The personal portfolio question is a bit broad, so not sure how to answer. I guess the answer is, read as much as possible about investing in a sector that interests you and go from there.

IB to crypto is a very un-natural jump. For the most part, there are no widely accepted valuation models in the crypto space. You don't have things like DCF, comparable transactions, comparable companies, liquidation value and whatever else you IB folk use nowadays. The valuation of businesses comes as an amalgamation of two methods:
1) Deep understanding of how the technology works and how different crypto companies apply their version of this technology to a real world issue.
2) Following a VC model of funding everything under the sun, hoping that you get 1 or 2 100x plays within a reasonable time.

To make it in crypto professionally, I would recommend starting to read about how the tech works. Start with the Bitcoin white paper by Satoshi. Then check out this [Princeton Coursera class] which is accompanied by [this textbook]
There is about 20 hours of video and the book is quite large, the class is a couple years old, but still I think is the best primer on how blockchain and crypto works on a very technical level.

Thanks for the Princeton Coursera class, very helpful and well made.
On a side note, I'd like to pick your brain on the current BTC/USD downward trend: when do you think we might reach a resistance? I understand you work for a market maker and not a directional fund but I'd still like to get your expert opinion.

Jul 24, 2018

what do you think about market manipulation in crypto space? my impression is wash trading/tape painting is rampant to support prices. seems evident from 'bart simpson' charts.

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Jul 29, 2018

Yeah, I see wash trading on some pairs on specific exchanges from time to time. I would actually say that a lot of this manufactured volume has died down since April, but thats not to say it is gone or won't be back. Overall, I think most bots present on large exchanges are very unsophisticated and a trader who knows what he/she is doing can spot them and work around them with relative ease.

Regarding price support, I don't notice it too much, like I mentioned in the very beginning of this Q&A, I typically clear my risk within 24 hours of any trades, and the majority of the time, much less than that, so if there is artificial price support, it just doesn't impact me enough for me to notice.

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Sep 10, 2018

Which is the best US broker for crypto trading.

Startup Hedge Fund. Reply for consulting on starting a fund or partnering in a fund.

Sep 24, 2018

Depends on what you are looking for. Retail, you can't go wrong with Coinbase or Kraken. Poloniex I like as well. But if you want anything deeper than the top 25 or so coins, you will have to go outside of US. If you are institutional, you want to just use OTC desks.

Oct 12, 2018

Thanks for your post. I currently manage some clients' BTC on Bitmex in Asia, and I get some further inquiries these days. so I may have a chance later this year to increase AUM. I'm curious about OTC trading. How is the liquidity? Can I buy/sell instantly with an order around $1 mm? Is OTC a better place to do day-trading?

Nov 20, 2018
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Nov 20, 2018
Oct 12, 2018
Nov 20, 2018