Q&A: 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.
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?
With what instrument do you short cryptocurrencies in order to maintain a market neutral strategy?
Do you think prices ever get back up to their highs in January?
Yes, for different reasons and without certainty on the timing, but yes.
Ugh i wish you had just said no, i'm going to end up FOMO buying more.....
.
What sources do you use for accessing crypto data?
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.
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
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.
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?
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.
What?
What do you think about the future of decentralized exchanges vs. centralized exchanges in crypto?
*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-and-the-perils-of-vir…
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.
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?
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.
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.?
-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
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?
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.
thoughts on NANO (formerly XRB)?
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.
Will you sell me long dated puts on a basket of crypto?
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.
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?
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?
-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?
-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
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-…]
[https://davidgerard.co.uk/blockchain/2018/03/09/mt-gox-crashes-bitcoin-… https://davidgerard.co.uk/blockchain/wp-content/uploads/2018/03/mt-gox-…
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.
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.
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.
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?
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
Many thanks for the reply, I'm looking to potentially enter the space so much appreciated.
What are some top twitter accounts you follow for crypto news and insights?
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.
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.
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?
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.
How much did the fund return to investors/partners since the start?
are you paid in USD or in coins? if coins, which one(s) are you paid in?
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-funds/cryptocurrency…
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.
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.
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.
How do you make sure that girls at the bar know that you trade cryptocurrencies for a living?
I wear the glasses in my avatar pic.
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?
Sounds like he needs to get into Monero and set up shop in Seychelles.
Hah, I actually wouldn't be surprised if they do a Crypto episode at some point.
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)?
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.
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!
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.
Very insightful. Thanks again Crypto Jones
-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?
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.
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?
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.
What is the best desk to work for in Sales & Trading, to stand the best chance at jumping to the crypto industry?
Interesting question, I think I would go with anything FICC, particularly FX would have a lot of similarities.
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?
.
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.
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?
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?
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.
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.
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.
Which is the best US broker for crypto trading.
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.
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?
Not all cryptos are created equal. If you want to do a $1mm order in BTC/ETH/XRP/XLM or any of the other top 10 marketcap currencies, an OTC desk can get that done for you right away with a relatively tight spread. However, as you go down the liquidity spectrum, the spreads start widening out and it may be more economical for you to break that $1mm into smaller pieces. When you get to coins that are 50+ on the marketcap list, you're looking at 5%+ spreads for $100k orders.
As far as day trading goes, I am not really an expert here, but you are probably better off doing it on exchanges, but if you're doing $1mm orders of a single asset, you're not really day trading, you're running a fund and need to think like a fund manager and not a day trader.
Interesting, not a cryptocurrency desk but instead an entire hedge fund operated around its liquidity.
I have a question. assuming that cryptos go obselete in 5-10 years, is there going to be a transition to similar spaces such as blockchain, or is the hedge fund just going to stop operating then?
I think that the transition to any other type of fund trading any other financial assets would be fairly seamless. In crypto, we still examine the macro environment in extreme detail. The relative value analysis as well as pricing is also the same for crypto as it would be for any FX trade or a bond. Crypto can also be lent via a repo contract or shorted using the same mechanisms used in traditional markets, so the trading and data analysis skill sets are more or less the same. The only difference is that in crypto, you also have the blockchain analysis component and you need to have an understanding of how the underlying tech works (for example what happens to asset prices when there is a fork).
Generally with any hedge fund, you don't just stop operating when a strategy stops working, you just adapt to your environment and keep making money any way you can (unless you blow up LTCM style, but prudent risk management can go a long way in preventing that).
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