As Bitcoin Plunged, These Crypto Hedge Funds Kept Making Money

  • Amber AI’s PTD2 fund surged 30% in first three months of 2018
  • Hedge fund advised by BitSpread made 5.7% in quarter

Bitcoin’s terrible start to 2018 is highlighting the appeal of cryptocurrency hedge funds that make money in both bull and bear markets.

Funds specializing in virtual currency market making and arbitrage strategies delivered first-quarter gains even as their mostly bullish peers lost 40 percent on average. That’s a big reversal from last year, when digital assets soared and market-making funds lagged far behind their long-biased counterparts.

Pivot Digital Trading-2, managed by Hong Kong-based Amber AI Group, generated some of the biggest gains among cryptocurrency funds that avoid directional bets. It rose 4.3 percent in March to bring its first-quarter return to 30 percent, according to the firm. Market Neutral Liquidity SP-Institutional, domiciled in the Cayman Islands, earned 5.6 percent in the first quarter, said Cedric Jeanson of BitSpread Group, investment adviser to the portfolio.

The results suggest some managers are finding ways to profit from wild swings in cryptocurrencies without having to predict whether the coins will rise or fall. Such tactics may appeal to investors who want exposure to digital assets without their extreme volatility.

As a group, cryptocurrency hedge funds are still highly correlated to the market. A Eurekahedge index for the category posted its biggest three-month slump on record last quarter as Bitcoin sank more than 50 percent. The index soared 1,709 percent in 2017, when Bitcoin jumped about 1,400 percent.

Among funds that lost money was Silver 8 Partners. It dropped 25 percent in March and 32 percent in the first quarter, according to a commentary sent to investors. Silver 8 invests in digital assets, along with fintech, blockchain and machine learning companies.

"High levels of uncertainty and low market liquidity make investments in blockchain-related assets volatile," the firm said in a newsletter. "They tend to overreact to cycles of euphoria and pessimism, where the market price itself acts as a catalyst for further momentum."

The fund has made more than 1,000 percent for investors since its inception in 2016, including a more than 750 percent gain in 2017.

While funds from Amber AI and BitSpread tend to not post such high returns during boom times, they provide investors with some protection when prices of digital assets fall.

Weathering Turmoil

Market-neutral crypto hedge funds fared better in 2018

Sources: Companies and investors

2018 returns for the first quarter

Read more on crypto hedge funds that made a killing last year

PDT2, as the Amber AI fund is otherwise known, trades the 25 largest digital currencies on exchanges including Huobi, OKEX, Bitfinex, Binance, Kraken and BitStamp, said Tiantian Kullander, one of the four former Morgan Stanley traders who started the firm with a one-time programmer at Bloomberg LP, the parent of Bloomberg News.

The fund began trading early this year and oversees about $25 million, said Kullander. Its quantitative trading strategies include market-making, short-term trend following and exploiting pricing discrepancies between different currency pairs and exchanges.

Market Neutral Liquidity SP-Institutional, with more than $100 million of assets under management, makes markets for currencies such as Bitcoin, Ethereum and Ripple, BitSpread’s Jeanson said.

Read more: http://www.bloomberg.com/news/articles/2018-04-19/as-bitcoin-plunged-these-crypto-hedge-funds-kept-making-money

Why is Bitcoins price down to two-month lows?

Crypto investors are seeing red this week. Bitcoin plunged to two-month lows on Thursday, dipping below $9,000 for the first time since November. At the time of writing, Bitcoin had bounced back up to the $9,200 level, down from weekly highs just above $12,000. This week has seen coins across the board in the red — a sign that investors are jumping ship to fiat currencies this time instead of swapping into altcoins as we’ve seen in the recent past.

At the time of writing, the total cryptocurrency market cap weighed in at $459 billion, down from January highs around $830 billion. It’s a contraction to be sure, but not a low for the last 30 days (that low came on January 18).

Is this the bitter end for Bitcoin? For cryptos? Well, no, probably not. Get your head screwed on right and you’ll see that (for better or worse) many coins have seen unprecedented growth in the last six months to a year, even with Bitcoin’s price halved from holiday highs closer to $20,000. On this day last year, Bitcoin was sitting pretty at $982. At the height of December’s craze, most reasonable crypto-watchers could agree that the price was overheated and there was only one way for it to go in the short term. Still, in the thick of the current correction, Bitcoin’s longer-term growth is anyone’s guess.

Cryptocurrency die-hards expecting the price to bounce back, even partially, will see these tanking numbers as the perfect entry point for getting in low and maximizing gains. Late speculators who got in during the mass crypto hysteria of the holiday season aren’t likely to have such steady hands, a factor that’s likely contributing to the slide.

So what’s causing the slide to begin with? As usual, no one thing can be blamed for Bitcoin’s current downturn, but recent skittishness around a subpoena for Bitfinex and concerns around Tether — a kind of cryptocurrency counterpart to USD that matches the dollar one to one — probably factor in. Recent news that Facebook would ban ads for ICOs probably didn’t help either. And it seems like every day a new Ponzi scheme gets busted, throwing yet more doubt on the credibility of plenty of less than legit ICOs.

Even beyond news cycle highs and lows, Bitcoin has seen a few mid-January dips before, though 2017’s Bitcoin behavior certainly broke from any seasonal patterns of the past.

Still, these growing pains are far from surprising. As cryptocurrencies mature — assuming they continue to do so — regulatory “bad” news will become more common. Countries across the globe will continue to struggle to accommodate their citizens’ sudden interest in digital currencies — or not, in the case of India, which just decided to ban them outright. Unsurprisingly, headlines like these inspire a sense of foreboding among cryptocurrency enthusiasts wondering which country will be next to come down hard. Fear, perhaps justified fear for many speculators with plenty to lose, amplifies each new regulatory revelation. But for cryptocurrencies to grow out of the current scam-laden chaotic era, a thorough house cleaning is healthy.

Bitcoin and other cryptocurrencies have also looked less responsive to positive news in the latter half of January compared to their relative buoyancy during December’s dizzying highs. Then, every little positive news blip seemed to push the prices higher.

Bitcoin aside, some altcoins might just be adjusting from overheated, overhyped December highs. Ripple is a good example of this, hovering around $1 Thursday, a price that’s five times its November value and only looks bad after XRP flew a bit too close to the sun with sudden early January highs above $3. Ethereum is also faring pretty well, all things considered, down from all-time highs above $1,400 but holding most of its newly built value after doubling in price from December prices around $500.

It’ll be interesting to see what happens as we move into next week’s Senate Banking Committee hearings on cryptocurrency. Titled “Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission,” the open hearings will air on February 6 at 10:00 Eastern time. It’s possible that the upcoming discussion in Congress has traders nervous, but ultimately variables from all over the globe combine to affect the market every day.

For anyone considering riding out the current correction, a little historical perspective — in this case, even a few months’ worth — could go a long way.

Disclosure: The author holds a small position in some cryptocurrencies. Regrettably, it is not enough for a Lambo.

Read more: https://techcrunch.com/2018/02/01/why-is-bitcoins-price-down/