A former Goldman Sachs and JPMorgan executive explains why he has experienced minimal losses in crypto assets this year despite carnage elsewhere. He also shares altcoin projects in his basket.
“We don’t think the Bitcoin and altcoin market has bottomed out”
As you can follow from Kriptokoin.com news, we are in the middle of the volatility in the crypto market. In this environment, investors suffered massive delays from hedge funds, VCs and investment firms. Chase Coleman’s Tiger Global Management has dropped over 44% this year. Also last month, SoftBank Group’s investment arm reported a $26.2 billion loss from bets on high-growth technology stocks.
Markets have not ignored investor woes over the Fed’s hawkish monetary policies, Covid, and the collapse of algorithmic stablecoin TerraUSD. These left both capital allocators and individuals to identify systemic risks. In this way, it has left investors to withdraw from risky bets in both the crypto and traditional markets.
According to crypto data platform Messari, the market cap of crypto has dropped to $1.24 trillion. Also, the market is 60% below its all-time high in November. Meanwhile, the S&P 500 and Nasdaq Composite have dropped 16.88% and 27.14%, respectively, in the last six months. Anatoly Crachilov is the co-founder and CEO of Nickel Digital Asset Management, UK fund manager. Crachilov said:
We don’t think the market has completely bottomed out yet. I also expect the crypto market to remain under pressure until the Fed’s hawkishness is reversed.
But Crachilov’s Nickel handles the fall storm better than others. The $300 million hedge fund offers around 12 different cryptocurrency trading opportunities. The hedge fund suffered little loss for the market-independent arbitrage fund. Crachilov said that in the midst of the bearish cycle, its flagship fund has fallen about 0.4% this year. This compares to Bitcoin’s price drop of around 39% this year. The three-year arbitrage fund has reported 31.3% returns excluding all fees since its inception.
How to trade in a bear market?
Crachilov said market volatility is a friend of Nickel’s arbitrage fund. Nickel was able to generate returns with the arbitrage fund, according to Crachilov. Because it doesn’t get ‘directional views on the market’. So the market is neutral. Instead, it focuses on the market dislocation between spot and derivative positions.
Nickel manages risks ‘fully hedged’. This means, according to Crachilov, that any derivatives position is hedged with an offset position to eliminate market risk. Crachilov explains:
During periods of low market volatility, this method creates large positions that can be severely affected when volatility increases. We control risk by ensuring that position sizes are proportional to opportunity. We do this for transactions that are hedged but path dependent, such as futures-based transactions.
Altcoin projects owned by the company: SOL, ETH and ALGO
It doesn’t matter if the price of a token increases by 40% or decreases by 17%. The firm seeks to seize arbitrage opportunities from slippages and trades, regardless of directionality. In addition to the arbitrage fund, it has three other funds.
These are Nickel’s Diversified Alpha Fund, DeFi Liquid Venture Fund and Digital Gold Corporate Fund. These funds include DeFi protocols as well as altcoin projects such as Bitcoin (BTC), Solana (SOL), Ethereum (ETH) and Algorand (ALGO) at different rates.
“There is no clear indication that the market will recover soon!”
However, DeFi Liquid Venture Fund has fallen over 50% since the start of the year. There are many market neutral arbitrage funds that focus on crypto. However, the typical stock arbitrage fund takes roughly 8% to 10% of annual returns. Last year, Nickel’s arbitrage fund had a 15% stake.
However, other crypto investment firms are facing headwinds following the collapse of LunaUST. Nickel has previously invested in Luna. But before he collapsed, he got out of his position and saved the LPs from the ‘death spiral’.
Arca, a crypto hedge fund started by Wisdom Tree co-founder Ryan Steinberg, wasn’t so lucky. The firm sought to use the stablecoin’s pegging to its advantage. For this, he doubled his investments. Arca did not disclose how much he was missing on his bet. However, the firm said in a note to investors that Luna is a “key holding” in the Digital Assets Fund.
The former Goldman Sachs executive also expressed his views on a possible crypto winter and the market’s decline in recent months. He said there is no clear indication that the market will recover soon. Crachilov made the following statement:
Investors should consider strategically allocating the first 25% of their total crypto budgets. They can also calculate to allocate the rest of it in the next 9 months. This allows traders to capture market lows. They will also already have a certain risk when the market trend reverses.
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