Quant hedge funds benefit from cryptocurrency turmoil

A small group of hedge funds benefits from the turbulence on the market for digital assets that have already wiped trillions of dollars from the total value of the cryptocurrencies.

Some computer -controlled funds - the algorithms use to try to predict and act price movements in crypto and other markets - have made profits from the rapid decline of assets such as Bitcoin and Luna, although many other investors suffer enormous losses.

One of the investors who benefit from such bets is the former dealer of Lehman Brothers and Morgan Stanley, Jay Janer, the founding partner of KPTL Arbitrage Management on the quay islands.

his Appia Fund, which relies on rising and falling crypto futures prices as part of his strategy, benefited from the 40-billion dollar collapse of the cryptocurrency Luna last month. The vehicle quickly placed short positions-bet on falling prices-to benefit from the quick decline in crypto tokens. Luna crashed from more than $ 80 to almost zero within a few days.

"We made good money with Luna," said Janer. "The model followed what happened on the market. It started to crack and the model got in."

Janer estimates that his fund has caught about two thirds of the decline in the Luna Prize. It had also bet against Bitcoin, the largest cryptocurrency, and other token-ether before switching its short bets to smaller coins.

"It is wonderful to have a market that is so strong," he added. "I don't know any other market that moves so much."

his fund rose by around 20 percent this year, while Hedge funds have lost an average of 2.9 percent in the first five months of this year. London-based asset manager Atitlan Asset Management also benefited a small short position in Luna-Futures after his algorithms looking for tradable market patterns.

For many crypto investors, this year was extremely painful. Bitcoin has lost 70 percent of its value since his all -time high last November and the overall market capitalization of cryptocurrencies died from around $ 3.2 trillion to less than $ 1 trillion.

The Three Arrows Capital, based in Singapore, is one of the top -class hedge funds that suffered from such declines - the early this month did not meet after his bets have become angry with digital currencies.

But the price declines have many quantitative hedge funds that do not know whether the courses rise or fall, offer a lucrative trade option as long as there is a clear trend in a direction.

Many large quantitative hedge funds have diversified in niche markets such as crypto futures in recent years in order to avoid overcrowded positioning in traditional markets and to improve the returns.

Systematica Investments from Leda Braga is one of those who have earned money with the sale of Bitcoin and ether, such as a person familiar with their positions. Its 6.7 billion US dollar alternative markets fund rose by 15.9 percent this year. Systematica refused to comment.

and also the hedge fund Florin Court based in London. His founder Doug Greenig, former Chief Risk Officer of the AHL unit of the MAN Group, revised the fund in 2017 to concentrate on more esoteric markets such as crypto, shipping and Chinese peanut kernels instead of on mainstream sectors.

"Our short crypto positions have recently been strong markets for us," said Greenig, whose funds have risen by around 15 percent this year. "There has been a very clear downward trend for months."

laurence.fletcher@ft.com