Q&A: ex-bank trader now running crypto hedge fund. questions?

I used to be very active under a different username many years ago when I was recruiting for trading roles while in college. Made a new account to not doxx myself. I benefited heavily from WSO (a few very helpful people in particular) and a friend suggested I should pass it on (yeah, cringe).

Background: I studied STEM at a college in the US (target). Did not fit into any diversity. Not American. Did buyside internships since pre-freshman year (unpaid included) because I was a trading nerd. Got a trading internship at a bank in NY (one of the top 3) and went back full-time. Traded macro products and did pretty ok in market making and prop. Yes there is a lot of prop trading, sorry "pre-hedging", at banks depending on your desk. Did that couple years and was recruiting for hedge funds (was going to join a pod at a macro fund in NY as a trader specializing in a certain asset class), but quit to start my own thing. 


Current: running a hedge fund in crypto assets. Typical structure: Cayman Islands fund/investment vehicle, overseas fund manager, 2 & 20, etc. blah blah

Other: I have some very close friends at banks and top funds in NY, HK, and London from my internships. I know their salaries and bonuses ("level" varies from analyst ~ co-founder at a hedge fund). I also know quite a few people in quant trading and HFT in NY, Chicago, and LA. 

I mostly want to answer/help with those who are recruiting and want to know about what goes on in a bank, and to those weighing bank trading against buyside (quant, research, trading etc) or even non trading roles like sales, banking, consulting, engineering etc.

I will try to answer anything I can as long as it doesn't dox where I used to work or who I am.  

I will not give any BS answers. I am not the typical person over-inflating their credentials or anything. If I can help at least one person, I will be very happy. 

Thanks. 

 

Thanks for the ama.

When did you know that the timing was right to make the decision and leave your salary job and go out on your own? Did you always envision yourself doing something entrepreneurial?

Also could you talk a little bit about how your fund & the challenges with starting / growing it?

 
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on timing:
was a factor of things.
(1) family not in the US, had a loss in the family in recent years, made me think about time I will never get back. had a few friends in analyst/execution/junior PM roles at various HFs who were entirely WFH (some airbnb-ed around the US, some went home to Europe and worked US hours etc.) and the more I considered the Time x career thing, I felt I could maximize both by leaving bank trading (I was in office throughout covid - Bloomberg and such report otherwise but this decision is usually desk specific, so if the head of your desk wants everyone in, you're going in)
(2) I just wanted to trade without corporate/political bs. when you're trading at a bank, there are so many teams and people that have non-parallel incentives. Sales, traders, algo traders all want different things. What often happens is if its a key client, traders will be pressured by senior sales to take a loss with a business justification - I as a trader will take a loss, but by winning this trade from other banks, this key client will give us business elsewhere in the franchise (e.g. in banking or prime brokerage), so net, our firm makes money. Its a very hand-wavy, unquantifiable argument which we often have to do (and effects our year-end PnL), but its easy for sales to say since they deepen their relationship w client and make money. If you want to climb the corporate ladder, you will be LOVED for doing this as a trader. That's why traders now who get promoted quickly are not necessarily good traders in the sense that they make money - they're often just GREAT franchise employees (nothing wrong w that). I unfortunately just wanted to make PnL and morally couldn't agree that I personally had to take a loss for a client - if a client sees a better price from another bank, they should go there.

Also the sheer number of teams/people means certain responsibilities become unclear e.g. if we have PnL reporting issues, who should be responsible for fixing and reporting? front office/middle-office/tech/product control/business mgmt/etc.? all those mentioned divisions are involved, then no one wants to take responsibility and you just end up getting caught in a super long email thread of each division bouncing around and trying to avoid the issue

answering the rest of your first questions:
Im still mid/late 20s, and have no real responsibilities. Whether I failed trying to be a junior PM at a fund or by starting my own thing, I was confident I could get a solid paying job in macro (made a few friends at funds and I could always be execution trader and try to work my way up). Thought that the level of "I have nothing to lose" will only keep going lower as I get older, so decided to take the plunge.

I was NEVER entrepreneurial in my life. Not even close. Not in my dictionary. But I became friends with someone at a hedge fund many years ago when he was still a research analyst (he's very entrepreneurial) and we promised to start a macro fund together one day. Last year he was already a PM and we were both doing pretty ok trading our macro products. We had been talking about crypto a lot from an analytical and philosophical perspective (I started buying BTC in 2014 so had been trading quite a while). One day we were complaining about work, floated the idea that we could probably launch a crypto fund (we had heard of some demand) and decided to do this (was that quick). 

on challenges:
costs man... lawyer fees and setting up fees were 100~200k usd. also fund raising was tough for us. I can't disclose our amount (we are pretty small) but we could only raise half of our target initially. Reason was a lot of our investors who had committed were macro PMs at various funds, and they themselves struggled last year when we were raising. So was hard for them to commit a few hundred k to us (minimum is 100k for individuals and 1mm for institutions). Plus most want to see official track record before they invest, which is fair. Final thing I would mention would be fiduciary responsibility. At a bank you don't feel the pressure of trading someone else's money (I know that may sound bad) but it really is very different. Now, we meet with people when we pitch, they decide to invest as they believe in us and the product we offer. I try not to let this bring down my risk appetite but rather increase risk management (can have both). Sometimes you meet investors' kids when you go pitch at their houses and makes you really want to do well for them so they can retire/pay for kids colleges/etc

Apologies, blabbered on a bit.
Appreciate the questions.

 

depends on bank obviously but FX related ones are almost always a winner. 

FX cash, EM FX, FX forwards, etc

And note, EM FX doesn't mean you can only trade EM. Often just means you market make say Taiwan dollar NDFs and Taiwan curve (yes you will most likely trade the TWD rates component too which is awesome), but you can also trade G10, gold, maybe emini futures on S&P, FX options, G10 rates etc

Seriously, its awesome.


If you want to prop trade, choose a desk that's not high flow (so you're not market making all day). Responsibility will be on YOU to prop trade to make money and hit your budget (what you're "meant" to make), but if thats what you want, its great. 

 

Hoping this goes back up. This was seed money for my search fund... thanks for the tips. Same age as you, top target also. Good luck with your fund

 

thanks for the questions. yes definitely interesting. there have been quite a few tradfi guys from analyst level to like global head of trading at banks (Bogucki), as well as some of the top quant traders from jump, vatic, etc. 

1. my co-founder is an ex macro pm, and we are both formerly discretionary traders. so most of our aum is in directional trading spot/futures/options (we hardly take leverage in directional stuff - options give us enough leverage usually). we do rotate into delta neutral stuff too in all the things you mentioned: cash/futs basis, futs/futs, lending, staking/farming. the rotation is based on discretion, particularly in choppy markets that we don't want to trade in and out of, or opportunistic if some yield is whacky high. since we are obviously trying to offer alpha to investors rather than just levered beta, the bulk of it is in fundamental research => long biased trading. 
2. hmm I'm not sure sorry. we were dead set from day 0 haha so we never explored this, so can't offer any insight into this. 

sounds pretty exciting if you and the pm can do that. good luck!

 

1) Good question, I'm not sure it exactly has. I was originally interested in behavior (individual thinking) and very big picture things (collective thinking). So that got me into macro stuff but the original interest naturally was a good fit to thinking about an entirely new asset class (how does this compare to traditional assets, is it a currency, is it a commodity, etc.) that is very retail/fomo driven. The example you bring up of algo equities would be very helpful in its own way e.g. understanding market structure and how order books work and gain more micro level alpha. In exotic rates and now crypto, I take longer term trades maybe a few months (buy high sell higher - ive been pretty bad at picking tops/bottoms) so the bigger picture, understanding social narrative etc. has helped me.

2) yes I believe so. Seems to be the driver of all markets now, and crypto now absent of a strong internal driver, has traded very levered risk-asset like. Was quite a surprise to me as most funds I know and even some sovereign wealth funds were looking to deploy massive size in January. So seems like all eyes on inflation and Fed, so those big players are under the same risk constraints (as they probably just trade crypto as a hyper volatile risk asset).

 

How is the overall liquidity in crypto? What kind of hold periods you look at (daily/week/quarter). 
Does your STEM or Macro bg help more with crypto?

Congrats on doing this at such a young age (pre-family/kids). I was a wuss in my younger days and worked for shops that ate my bonus till my early 30s good on you for seeing the light sooner.

Since fundraising is sucha pain we all know…Would you consider joining a MM pod structure later on if returns etc looks good and get your terms. They all seem super hot to get into this space from what I have seen.

 

Firstly, thank you, I really appreciate that. I got very lucky to meet my entrepreneurial co-founder and didn’t envision starting something so soon. 
 

Liquidity: massive range in depth but pretty good for the most part. Particularly for the majors + growing L1s (BTC eth sol luna avax one near etc) is listed on a lot of exchanges in spot or futures, and also usually on decentralized exchanges in some form (so we can hit/lift across if we really need to, but rare). We’ve sometimes owned low single digits % of a market, but no problem getting rid of in batches. Trading Asian rate derivs were much more illiquid in previous life lol. 

Holding period: usually a multi week multi month sort of thing (altho we’ve launched fairly recently so this is based on our personal crypto trading). I’m pretty average at short term trading so I do that in my PA if I need to satisfy an itch (would be a bit irresponsible if I did it for the fund knowing I’m not that good). 
 

STEM/Macro: macro for sure in my experience. Because you really need to understand group psychology in my style of trading (not short term scalping). A token could be released by a great project with great tech, but if VCs and retail don’t market it or buy it like crazy, price isn’t gonna go up. Macro thinking helps me fit that puzzle piece into the greater crypto puzzle. STEM helped in the basics of understanding how blockchains work and how various proof systems work but not particularly PnL contributing.

Crypto MM: market making right? Think there are enough out there (we’ve signed on with about 10 or 11 and also use decentralized exchanges). Might write some market making bots if we see an opportunity but nothing too serious. But yep like you said, super hot and super profitable business, especially those who have traditional finance connections  


thank you again, and good luck in 2022

 

Thank you for doing this! I'm also an international at a target studying engineering. I'm going to do a S&T internship this coming summer and was wondering if you think it would be beneficial to start in fixed income research (CLO,ABS and so on) and then move into macro product trading later on for more solid fundamentals in coding/research? Or do you recommend starting out as a trader and getting onto a macro desk as soon as possible? What products/desks do you think would be the most transferable to the buyside or learn more about the economy? My bank is not one of the top three, do you need I need to re recruit for fulltime or lateral later to a top BB if I want to move to the buyside? Would really appreciate your answers!

 

Congrats on getting the internship!

On research vs trading, this is an interesting one. I actually know more ANALYSTS who have gone to hedge funds from research than from trading. Usually move to a research roles on the buyside but some have gotten risk taking roles (also some a couple sales analysts who got buyside roles from sending their own trade ideas and doing their own "research" - one sales analyst is at a HF as a junior PM on a 120k base and makes a small cut of his 50mio book. which is far better than any other arrangement of his age I have heard. For reference he was a general fx/rates sales dude). But obviously if you want to eventually trade, maybe you'd want to trade from the get-go... I would say go for the type of role you enjoy. I think the most important things for moving early to a HF include being self-starting, going above and beyond to learn, and finally being active in recruiting - the relevance of a specific role usually comes later. E.g. if you're a trader and want to move early associate or pre-associate, you won't have much of a track record anyway. 2~3yrs of positive PnL could almost entirely be luck or your boss telling you what to do or you just capturing bid/offer. So being active in paper trading and having a record of your paper PnL, along with a history of trade ideas and their performances, would be much more important. I sent out so many trade ideas and tracked all of them, started since the day I joined before I had a book. So yeah, think about if you want to be risk taking or researching (and other aspects of the differences like work/life balance), and then everything else is just up to how much you work harder than everyone else to get a buyside role (I believe). 

Product/desk: Similar answer here, especially if you want to move early. Say you're on a niche desk like Mexican FX swaps/forwards. After 2~3yrs, your knowledge of the product (the technical stuff related to fx swaps) will be solid, but probably not an expert, and some 35yo PM trading Asian FX options (different product) at Brevan Howard would still know far more than you and would be able to ask more interesting questions about the product. How about your Mexico specific knowledge? Same thing. If you don't check the market for 2mths, you may as well know nothing about Mexican FX and rates. That Brevan PM who has only traded Asian FXO would probably pick it up faster than you and obviously be more profitable anyway. My point is, after only a couple of years, it doesn't matter, you're not expected to be an expert of the product. If you recruit for funds as a 3rd year bank trader, your current role just helped your resume not be thrown out, since BNP hiring you (just random example) means you're probably smart enough and you probably learnt the fundamentals of your role well. HFs or recruiters will just look at you and say "yep he/she is still a sponge (young and can learn) and was good enough to be hired at a bank as a front office role, check check". If you're thinking longer term, every trading role has an equivalent buyside role. Question is are you consistently profitable? 

Move to better bank: genuinely dont reckon buyside really gives a sht... I almost wanted to move to Mizuho FX trading because I heard they got a higher % of their PnL as bonus. But I know its tempting. Same with colleges right, you want the name and people tell you it helps. But my response is the same as research vs trading thing, I still think the most important thing is how much you work for your next role, so you can 100% get the same opportunities as long as you work for it. And don't think people really care once you're out there trading or whatever (JPM traders who makes 15mio PnL a year versus Credit Agricole trader who makes 30mio... pretty easy decision). 

I know a lot of my answers can be seen as "dude just answer my question" - I definitely asked similar questions to you back in the day. But this is as truthful as I can answer them. There are so many paths to every role out there, just keep your goal in mind and talk to a lot of people. A good network can be helpful when you're wanting to move. Good luck, and hope some of this was helpful. 

 

Hey man awesome conviction, really inspired by you jumping into the crypto HF side. I would love to have a chat with you someday and get your advice or just bounce ideas. I'm in a pretty similar situation. I'm currently a junior in university but I've been working as an analyst for a top 10 crypto vc with AUM 1B+ since pre-university. In terms of responsibilities, I cover all aspects of the deal process, deal negotiation and post-investment work. I do deep-dive research to publish for my firm as well. I've recently become an advisor to a crypto startup and I'm helping them with introductions to other entities thru my own network. My current goal is to just keep at it and expand my network in crypto, and see how it goes over the next 3 years before making my final decision. Would you have any advice for me? And do you think I should do some Tradfi internships?

 

Hi Jake,

I see you're a younger student already ahead of the game in terms of getting into crypto. Mind if I shoot you over a PM? I'm a senior heading into the industry and have 18 months of crypto-native experience with one of the largest trading desks and recognizable smaller HF's. Love talking to some of the younger guys in the space. I was given the advice to network and connect as much as possible with the younger guys because in 4-5 years they're going to be your peers and guys looking for new hires in the future.

 

Wow awesome background man, seriously good stuff. In crypto years that's a very long time, and so cool to hear you got in deep so early. Also, it looks like you're already getting offers! 

Before I respond, I'll say I'm not traditional VC, (although we have made early stage investments and we're friends with quite a few top crypto VCs), so I'll respond as best as I can from my experience. 

I think how you're currently thinking about it is perfect. Your plan seems like you're going to give yourself enough time post university to feel it out and get a better sense, and not rush into any decisions (open-minded). Seriously I am impressed, I wish I had your maturity as a junior...

If you have had quite a few years of experience already at a good VC as a junior, I would say you're in a superb position. I know some young guys who have gone from entrepreneur to VC analyst (some failed entrepreneurs) and also VC analyst to entrepreneur (usually some founder they worked with likes them and brings them on), so maybe keep an open-mind as to the range of roles you might fit into. I also think there'll be quite a few family offices interested in someone with your experience (plus you're young so you're relatively cheaper than say a partner). 

I'm sure you know well but crypto VC is all about who you know right. Knowing other funds that can share deal flow/get you on the table, knowing founders who might start something else, etc. Its a people business with some valuations involved. Just keep expanding your network, go out of your way to get exposure to your portfolio companies, go out of your way to help those portfolio companies (e.g. offer to help them with an investment deck, or their website etc., things outside your current VC role and things that directly help portcos). People will start recognizing your name and by mid-20s, you can probably choose where you want to go (maybe be an angel investor and just help a bunch of companies).

On tradfi, I dont think its necessary at all given your in-depth experience. Maybe if its technically TradFi but still very crypto native (like Race Capital comes to mind), but there's probably no difference from where you are now. I'm not sure if you're like this, but I think as a college student its tempting to go somewhere with a good name that your friends from back home and college mates recognize... BUT, when you're an accredited investor at 26yo deciding whether to invest 300k in some on-chain protocol while working from wherever tf you want in the world, promise you won't give a sht about tradfi!

Again, sounds like you're on the right track and being open-minded is great. If you have any other questions, feel free to DM or whatever. Congrats on your experiences so far, and good luck!

 

Unfortunately I ran out of DMs and I can't send one your way. But I'm really keen on bouncing ideas off you! Do DM me if you've got any left haha, or I'll just shoot you one when I can.

Thanks for the advice! I will definitely take up your advice on helping portfolio companies. Yeah for sure, my friends are all aiming for traditional firms and boutiques, and so few are open to the idea of a crypto VC. At least for this year, I've got a summer stint at a small IBD boutique, then I'm planning to return to my current crypto VC or go to another crypto VC that I got head-hunted for. 

Also, I saw earlier that the legal fees were extremely expensive for you to set up the firm and all. I think legal fees all cost an arm and a leg in this space, but let me see if I could help in some way.

Would love to learn how you see the macro crypto climate, as I want to expand my skillset. Nowadays most crypto VCs have a liquid trading side so it would be great if I could learn a little from you. I could share some of my own experience in the crypto VC space as well. I've shared with a couple of traditional VC and global PE firms that are looking to enter the space. 

 

This is incredibly insightful, can I actually send you a PM? I'm a new graduate entering the space and I've had some internship experience at one of the largest prime-brokers for crypto and also interning at a crypto-native hedge fund that is very lean but recognizable so I don't want to give myself aware there. I'm kind of just wondering about the landscape in terms of pay/opportunities/career growth for new graduates entering the space. 

By the time I graduate in May, I'll have had 18 months of crypto-native experience at two of the largest crypto-firms in the space which has been very fortunate for me in terms of a career search but there's now so many opportunities available to me I don't know the best one to set myself up for success in the long term.

 

It's been a while-- but would you happen to have any thought processes or lessons learned since then to now? Also a new grad here who worked across a few crypto startups (tech/research rather than trading) interested in career paths 

 

We haven't made any hires like that since launch so unfortunately can't answer. If we were to hire someone, it'll probably be a data scientist to perform on-chain analytics or an engineer to deploy some smart contracts or beef up our risk system. 

For other crypto funds I know of, if coming as banking analyst, the roles would probably be VC or business management related.

 

can't answer some of these but will try my best!

a) we don't actually have a set number. we tell investors we will beat BTC and ETH returns, as those are what most are investors have exposure to.

b) so far so good :) 

c) like what we actually have now? we're locked in some protocols we invested in VC-style which I can't say, but mostly DeFi related projects as that's where we can add the most value as ex-tradfi traders. We mostly stuck with L1 plays than trying to "stock pick", so we were long the classic trio of solunavax and some others like $near. Also been in some metaverse plays that have done well. To start the year we were pretty flat and recently shorted ETH and ONE which was nice.

d) hmm... 5yrs is a long time. Would like to 10,000x from our launch AUM by then. 

Sorry a bit vague but hope you understand!

 

Very interesting thread. Thanks for doing this. 

Couple of questions:

1) Do you and your partner have a division of labor, who does what, or cover certain assets/ projects etc? 

2) What is more important in your investment process: fundamentals of coin/project etc. or technical analysis of market/pricing? (sorry if dumb question) 

3) Can you recommend some portals/podcasts/people etc. you follow for news?

4) If you need to pick 1 or 2 coins to hold, without trading, for e.g. next 5 years, what would you pick?

 

No problem at all and thanks for your questions. 

1) For the trading and investment side, we essentially find stuff we’re interested in ourselves, do basic research, discuss with each other, and then if it’s worth delving deeper, we do a deep dive and pitch to ourselves. Then comes the more difficult part of sizing the trade, how to express, entry/exit, etc. Outside trading and the investment process, my partner takes care of most the legal and operating/business management duties while I do the tech/system management side.

2) Not a dumb question at all. I’ll try to give a high level answer. We see them as equally important and steps in a process rather than competing factors: we do the fundamental research (as deep and thorough as we can) and then we’ll move on to price action and technical analysis. Sometimes we do flick through charts or have more “quant signals” that then encourage us to research. Technicals/price action is also something we look at constantly for sentiment. 

3) have a few podcasts I like and I recommend often.
The crypto chats on OddLots (Joe and Tracy) are great and I think very beginner friendly. Think they’ve had quite a few since covid. 

Uncommon Core (Hasu and Su) is very good. Can get quite technical. 

UpOnly (Ledger and Cobie) is excellent and a little bit “lighter” in mood (a bit more degen) but doesn’t take away from the depth they go into. 

Blockcrunch (Jason Choi) is great too. Can get technical. 

All the people who host those have great Twitter accounts to follow too. The Lau brothers and their website is worth a follow too (Darren, Daryl and Zachary)

4) Haha toughie. I’ve (politely) declined to answer this before. 5yrs in crypto is like 15y in traditional finance, and i don’t want to pretend I have any idea what 2027 will look like… If you want one though I’ll say BTC as a “safe” bet even though I don’t hold any. Think this is still the entry point for institutional money coming in and I like that BTC doesn’t pretend to be something its not (a blockchain for applications) and I think new L1s will continue to compete with ETH instead. 

This year should be very interesting and a short term decider on whether institutional money will come into crypto (inflation worries x hikes: will it outperform the traditional inflation hedge of gold and will it outperform stocks and other risk assets in a risk off environment?).