The space is experiencing one of its roughest stretches in memory, with trouble brewing at exchanges and lenders, and token prices collapsing. One company has been able to ride out of the volatility.
Pythagoras Investment Management LLC has two funds that have been rare bright spots in a market that has been eviscerated by a number of scandals. Both its Market Neutral Fund - a strategy that doesn't have exposure to the price of any crypto at any time - and its trend-following Pythagoras Token Fund have gained about 8% this year, according to the company. The world's largest digital token is down 60% this year.
In bear markets, we particularly outperform, said Mitchell Dong, chief executive officer of Pythagoras. We have positive returns because our absolute return funds are positive whether the market is up or down - whether it is a bull market, a bear market or a bull market. Pythagoras'market-neutral fund uses arbitrage, so it is simultaneously buying the same coin at different places and different prices, so buying low and selling high. The trend-following fund uses technical indicators to detect short-term trends in the market for criptocurrencies, Dong said.
The FTX, a former high- flying exchange, has been engulfed in scandals in recent weeks, reminding investors of the implosions of other digital-asset firms earlier this year. Other companies were dragged down by the collapse of the FTX.
Pythagoras's arbitrage fund had a 10% exposure to FTX before the exchange collapse. The company requested a full withdrawal of funds and received about 7%, which spurred it to hedge by shorting the FTX's native token FTT.
The collapse of the FTX spurred a plunge in the price of virtual currency, with Bitcoin falling below $16,000 a day ago, as it neared its high of $69,000 a year ago. The coin is close to $17,000.
Pythagoras fund strategies play off the fact that cryptocurrencies, which are traded on numerous exchanges, are driven by retail investors, said Dong.
He said that the idea is to use quantitative, technical indicators to try to detect trends that are either up or down. When you detect an upward trend, you go long when you think the psychology of people is that they think it is going up. When the trend is going down and everyone is selling, you go short. Dong, whose prior roles included managing hedge funds for more than 25 years and trading uranium and electric-power contracts, founded Pythagoras in 2014, after Bitcoin caught his eye. There are 90% drawdowns associated with buying and holdingBitcoin. He said that was not my risk-return profile. I want to have steady returns of 1 -- 2% per month, with no losing months. Pythagoras is not alone, other market-neutral shops have also recorded positive returns this year. The strategy doesn't look attractive during bull markets when coins tend to see big upward surges, but in a bear market they can stand out, traders say.
Earlier: Once-Dull Crypto Strategies Are Now Shining in the Bear Market.
Dong said that the market for cryptocurrencies is very fast changing because of the fact that we can produce returns. Every day in criptocurrency is an adventure, and every week is an adventure. Every quarter there is a paradigm shift and every year there is a decade in traditional finance.