Two Crypto Hedge Funds Evaded the Market Collapse, Here’s How
With issues developing at exchanges and lenders and token prices falling, the cryptocurrency market is going through one of its worst periods in recent memory. One business, though, has managed to withstand the turmoil.
Two funds managed by Pythagoras Investment Management LLC have stood out as rare shining examples in an industry that several scandals have decimated. Both its trend-following Pythagoras Token Fund and Market Neutral Fund, a strategy that doesn’t have exposure to the price of any cryptocurrency at any moment, have increased approximately 8% apiece this year, according to the business. Conversely, the most significant digital token in the world, Bitcoin, has decreased by over 60% this year.
According to Pythagoras CEO Mitchell Dong, “We notably outperform in bad markets. As a result, we will have positive returns regardless of the market’s direction—whether it’s a bull market or a bear market.”
By purchasing the same cryptocurrency at several locations and prices concurrently, Pythagoras’ market-neutral fund engages in arbitrage, effectively buying low and selling high. In addition, according to Dong, its trend-following fund employs technical indicators to identify transient movements in the cryptocurrency market.
FTX’s collapse and its effects
As Sam Bankman-formerly-high-flying Fried’s cryptocurrency exchange FTX filed for bankruptcy, investors were reminded of the collapses of other digital-asset firms earlier this year and the controversies that have enveloped the crypto sector in recent weeks. The demise of FTX also affected other businesses.
Before the collapse of the exchange, the arbitrage fund of Pythagoras held a 10% exposure to FTX. However, the company claims that after asking for a complete cash withdrawal and only receiving roughly 7% of it, it decided to hedge by shorting the native token of FTX, FTT.
The FTX collapse caused a dip in cryptocurrency prices, with Bitcoin falling below $16,000, a long way from its recent highs of close to $69,000. The coin is currently trading at roughly $17,000.
Pythagoras CEO Expands on their Approach
According to Dong, the fund methods of Pythagoras capitalize on the fact that retail investors drive the worldwide and multi-exchange trading of cryptocurrencies.
The goal, he explained, is to employ quantitative technical indicators to attempt and identify upward or downward trends. If you see a trend moving up, you should buy while you believe most people are subconsciously inclined to believe the trend is going up. When everyone sells, and the action is downward, you go short.”
Dong, who had previously managed hedge funds for more than 25 years and traded contracts for uranium and electricity, among other things, started Pythagoras in 2014 after becoming interested in Bitcoin. “90% were expended when buying and hodling bitcoin. This did not adhere to my chosen risk-return profile,” he declared. Instead, he said his goal was to ensure 1% to 2% regular monthly returns without wasting any months.
Other market-neutral stores, besides Pythagoras, have also posted profitable returns this year. The method may seem less appealing in bull markets when coins frequently experience sharp increases, but it may be more noticeable in bear markets, according to dealers.
As Dong elaborated further, the crypto world is a relatively new sector that is growing at an astounding rate, and there is bound to be some drama and adventure daily and weekly. On the other hand, traditional finance experiences a paradigm shift every three months, and every year is a decade.