What does the fund do? The article suggests they do arbitrage. Those opportunities actually tend to increase when things are volatile. Also while you can lose money doing it you wouldn't expect a precipitous collapse in NAV. If you discover you're slower than everyone else you can shut down.
Volumes aren't necessarily correlated to price either, so that isn't entirely convincing.
I've also heard that plenty of arb guys are doing fine.
If he's speculating and not just running arbs, what is he doing? If he's just punting the cryptos that would seem more in line with what's happened, but it's not clear what he's up to from this.
Also, with arbitrage it's limited how much capital you need. A lot of HFTs use very little. If you're getting money like a hedge fund you have to be sure it can be put to use.
Ex HFT and fund manager.
[1] https://www.bloomberg.com/news/articles/2018-12-11/mike-novo...
There's this bit in Taleb's first book, "Fooled by Randomness". This was before he made a shit-ton of money. He pointed out that a lot of the nominally successful traders he worked around would declare a strategy, make a few bets, make a lot of money, and then act like geniuses for thinking up the strategy. However, they'd never really examine the obvious alternate hypothesis: they got lucky.
I used to work for a proprietary trading firm. We'd get new traders by taking very confident, driven people (e.g., former Olympic athletes), making them be clerks for a while, and then turning them loose in the pits. The CFO kept a very close eye on them early on because their natural confidence combined with early successes lead them to believe they were gods. It wasn't until they got really hammered by a bad bet or two that she'd begin to trust them.
It reminds me of a favorite line: "Every corpse on Mount Everest was once a highly motivated person with a can do-attitude."
They blamed their failure on "increased competition for arbitrage opportunities." Properly, arbitrage is low risk exploitation of differences between two markets in the same thing. Cryptocurrencies used to look like they had arbitrage opportunities, with differing prices between exchanges. Mostly, that was because it was so hard to pry cash out of the underfinanced cryptocurrency exchanges. They always had some excuse for delaying paying out. Arbitrage requires the ability to move cash quickly from one exchange to another.
As that situation improved, the spreads between exchanges narrowed. Opportunities for low-risk arbitrage disappeared. These traders reacted to this by going into higher-risk forms of trading. Which is about typical for traders. It didn't end well.
So, for instance, cryptoA trades for $99 on exchange 1, but $101 on exchange 2. Quick, buy on exchange 1 and sell on exchange 2!
Congrats you made $2 on each trade x 5 cryptos. That is hardly enough volume to make it happen.
Now imagine that the volume is so thin that after you bought the first one on exchange 1, the price gap closed, and by the time you sold on exchange 2 it collapsed.
I wonder how it works though. Most exchange APIs are terrible and it is simply not technically feasible to do anything using those APIs.
Also prices at too many exchanges move in absolute lockstep.
Must be private, privileged access to better (internal) APIs, profit sharing, rip the face of "retail" investor kind of deals.
After all the "exchanges" are not really exchanges as we know them in other markets. They're more like forex trading.
I think the crypto market would benefit from a (semi-)regulated impartial exchange where other firms can become members and act as brokers to direct retail flow.
But unless there's some sort of regulation about it it would just be a private business that could kick out any member for any reason. To much risk for the members.
My guess is that his fund got locked into a levered position on one of the exchanges like BitMex for trying to trade too much then couldn't get out for 24 hours. This kind of thing is more common than you might expect. There are also very few exchanges that allow margin trading, leverage or shorting, and all the ones that do have, uh, questionable compliance practices.
Given his pedigree you'd think he'd know better than to bet on something that's 99% pure unbridled speculation and 1% actual technology. It's like knowingly investing in a Ponzi scheme, what did you expect?
There are plenty of positions that are stable and low risk. Like running the exchange itself, all sort of middlemen and some form of arbitrage.
A hedge fund is mostly about funneling as much of customer money as possible to the fund manager. It's a fairly straightforward and risk insensitive business.
Novogratz is a fun character and a good fundraiser, but he doesn't have a pedigree as an investor. He became famous (and a billionaire) by taking Fortress public. Under his watch, it then went from $35 to down below $2. After he was demoted, he ran a macro fund there which performed awfully and, in 2015, it was shutdown and he was forced into "retirement".
E.g. he also bought 500k worth of ETH and sold it for 250M. Paid his taxes, bought a new plane, and donated the rest to charity. His LPs might be nervous, but he's probably doing just fine.
paraphrased from https://econweb.ucsd.edu/~jhamilto/oil_history.pdf
Passive retail traders were never in commodities trading. Retail trades stocks. Retail has been trading digital assets like penny stocks. GTFO of the digital commodities market if you don't swing trade supply and demand or actually use it.
And then the first thing the early adopters did was recreate the flawed financial institutions that surround "real" money so that they could pretend to be Gordon Gekko and throw around words like "arbitraaaaage".
Is there data on what percentage of cryptocurrency transactions are "Real, actual, humans buying and selling real, actual, things or compensating each other for their ideas and thoughts" and what percentage consists of "traders shouting at each other in the echo chamber"?
Actually, it's pretty easy to run these numbers for a rough ballpark. About $2.1B of Ethereum (22.7M ETH @ $94) was traded across all exchanges in the last 24h. 3 ETH is mined every 10sec or so, so that's about 26K from mining, probably not a large contributor. I don't have good numbers for how much ETH is traded per day, but it's 5.7 TPS, so about 490K on-chain transactions per day. A quick glance at recent transactions shows maybe an average of 0.2-0.3 ETH per transactions (heavily skewed - the vast majority are for 0.01 ETH, and then maybe 1 out of 50 will be a 10 ETH transaction), so that's about 100K ETH/day. The figure of roughly 99% unbridled speculation and 1% actual technology sounds about right.
You can't call the bottom on something you can't value, Novogratz thought it was at 6000 but made the wrong bet (for now, let's see what happens on a 1-2 year timeline). He's been doing the roadshow this year saying institutional money is coming in (I had a brief chat with him in London) but I don't see any pension funds touching something this volatile with a barge pole. Not until real value is starting to emerge
Exchanges use off-chain transactions. When you see a transaction on the block chain, it's very unlikely to be a settlement between two exchange customers because it's far more efficient for the exchange to settle on its own private ledger.
On-chain Bitcoin transactions incur fees. Aside from a group launching an attack on Bitcoin, there's little return for the cost of spamming the block chain.
Manipulation can be 100% or 10%, who the hell knows?
What the hell are buy/sell curves?
Apparently Silk Road had sales of $1.2bn which gives you an idea of the amount of drugs traded and the turnover of Bitcoin on exchanges was about $2000 bn over the last year. So sales of goods as a percent of speculative transactions are probably <1%. Not that that means that much - FX speculation is larger than real trade for fiat also.
Ah yes, I remember how beanie babies changed the way we all lived. And tulips, of course. And rhodium?
Hmm.
Not surprise anyone who came in and trade may be catching knives. Plus all the uncertainties in market participants
Long plays in this market are massively risky bets. They seem completely unnecessary as well. With the volatility that exists and the decent level of volume, there's tons of easy money to be made.
(It’s hard to see exactly on the charts, because the stock price has fallen so fast +/- 10% is now a matter of just two or three pixels)
https://www.google.co.uk/amp/s/www.newyorker.com/magazine/20...
https://equity.guru/2018/08/01/galaxy-digital-holdings-glxy-...
Now we're one year further and he says it will go up again... Some people just don't understand :)
Even free real-estate has its drawbacks.
This move took many speculators, including Novogratz, by surprise:
"I did think Bitcoin was going to hold at $6,200," said Novogratz. "It stayed there for four months. It felt like the selling was finished. But then Bitcoin Cash decided to fork again."
https://www.forbes.com/sites/billybambrough/2018/12/12/bitco...
I suspect many of these speculators are betting on a quick recovery. Should that not pan out, Novogratz and many others are headed for a world of pain.
Meanwhile, Bitcoin the technology continues chugging on. The most noteworthy development is the rapid build-out of the Lightning Network scaling solution, but there's a bunch of stuff beyond that which gets almost no attention.
Management fees make for good medicine.
Isn't the whole point of bitcoin that you get rid of centralization? But apparently people want to bring it right back with lightning.
It's happening right now:
https://bitcoinmagazine.com/articles/progress-report-lightni...
