Generating Alpha in Crypto Markets | DAS London 2025 | Day 3 | Investor
Summary
Alpha Generation in Crypto: The panel emphasized the importance of generating alpha in crypto markets through diversified strategies, contrasting with the more common focus on beta.
Market Neutral Strategies: Anatoli from Nickel Digital highlighted the use of market neutral quant strategies to achieve low volatility and high Sharpe ratios, offering diversification across multiple portfolio managers.
Benchmarking Challenges: Panelists discussed the challenges of defining benchmarks for crypto investments, with some viewing Bitcoin as the ultimate benchmark, while others focus on risk-adjusted returns.
Institutional Involvement: The increasing involvement of institutional investors is reshaping market dynamics, with more professional price discovery and a shift towards liquid strategies.
Venture vs. Liquid Strategies: The discussion highlighted the current imbalance in crypto allocations, with a call for more investment in professional liquid strategies to complement venture capital.
Market Structure Evolution: As the market matures, the panelists expect greater dispersion in asset performance, with fundamentals playing a more significant role in determining value.
Lessons from Market Events: Recent market dislocations provided insights into the resilience of market neutral strategies, emphasizing the importance of managing risk and style drift among portfolio managers.
Future Opportunities: The panelists identified areas like DeFi, stablecoins, and Bitcoin financialization as key sectors with potential for future growth and alpha generation.
Transcript
Good afternoon everybody. Can you hear me okay in the headsets? Love it. Uh so my name is Felix. I'll be doing double duty here today. I'll be the MC for this afternoon for the investors track, but I'll also be doing the first panel today which is all about generating alpha in crypto markets. So I have a stacked panel here today of of fund managers here to talk about all things alpha. A little bit of beta but mostly alpha. Uh so we'll go down the panel here and if you could just introduce yourself and what sort of strategies and what do you focus on in your fund starting. >> Hi my name is Anatoli. I'm CEO and co-founder of Nickel Digital. We are a Londonbased FCA regulated uh multistrat multi- manager hedge fund. Uh we've been in business for over six years uh running market neutral quan strategies in the space. In terms of underlying strategies, the start ARP, RV basis, funding, ARP, cross exchange ARP, HFT market making, min reversion strategies and everything is packed as a multi- multi-manager fund. You can think of us as a millennium structure whereby you have multiple trading teams under one fund umbrella and from the perspective of our investors, what they're getting is diversification across strategies and across individual PMs. Thank you. Prior to that, I was with Goldman here in London and the whole crypto equally triggered this kind of transition from banking into hedge fund world. >> Hi everyone. Um my name is Nick. Um I run Fortius. We're a crypto asset manager as well. Uh which we launched a little bit over three years ago. Uh backed by Schroers here, the you know the traditional asset manager out of out of London. Uh we run three funds, two main set of strategies. One directional long only token selection fund uh whereby we're trying to you know help investors go and you know build the right exposure to to crypto to digital assets uh which is can be a pretty tricky pretty pretty tricky task. And on the other end, we also run a market neutral fund of funds SMA platform. Um, a little bit similar to to what an Anatoli works on, but where we're running certain strategy in house, certain strategies through through SMAs, and I saw a large number through through fund allocations. >> Hi, my name is Thomas Bailey and uh, yeah, run a fund called Road Capital. We have a hedge fund and then we also have a private fund, venture fund. You know, we're very long term. I I sort of think about the liquid side as liquid venture uh and then the private side as you know true venture um yeah uh you know the small team um you know of folks and we focus mostly on bridging basically traditional finance and crypto. >> Hi everyone, my name is Sha Sha. I'm an operating partner at KKR leading the digital asset strategy as well as private equity um digital value creation. Um, KKR obviously many people know is one of the largest private investment firms in the world with 700 billion US dollars assets under management across many strategies but all like private so we're not sort of in the liquid side and then on the digital asset side uh we've been making uh investments from the balance sheet into some of the leading crypto VCs in the world as well as from our tech growth fund um investing directly into later stage cash flow generating um preipo companies um also on the private side of things looking forward. >> Awesome. Yeah. So, as we go down the rabbit hole of of unpacking alpha generation in crypto, I do want to start from the top in terms of just level setting on on all four of your perspectives and definitions of, you know, there's a lot of talk at these crypto conference and in the industry in general of what I would characterize as as beta or or levered beta and and not enough talk about some of these alpha strategies and and and on top of that as well is, you know, obviously it's quite clear in some trady worlds what your benchmark is but I would say there's there's still some debate around what is the right effective benchmark to use in some sort of alpha fund alpha strategy. So we just love to hear of all of your perspectives on those two level setting definitions. Maybe we'll start with you an >> well when we thought about setting up the fund uh our approach was there is of course beta and many people come to crypto specifically for beta but it comes naturally with volve 50 to 70%. And not everyone is able or willing to underwrite 70% of all. On the other hand, if you can build a solution which runs at single digits, right? So in our case like 5% which is onetenth of the underlying market that creates an interesting dynamics. First of all it fits many portfolios and B if you can deliver strong double digits returns you're sharp respectively two three four and that becomes extremely desirable sort of investment solution. So we have gone this rabbit hole right and even more so when you have multiple PMs on a platform each of them can run with wall of 10 12 but once they combined given the uncorrelated nature of these PMs your fund runs at much lower volatility and that what we call alpha in a sense you can avoid pit pitfalls of market corrections like this weekend right whilst delivering sustainable source of returns irrespective of market directionality. >> I mean I'll just add something to this um which I think is interesting. When I came to the space my perspective I think the perspective of many people was first you know it's all kind of one big trade right all the this uncorrelation doesn't really exist and all these strategies work at the same time they all work when retail is there and and volumes are high and and and basically everybody's money making money at the same time and and losing money at the at the same time. Um and there's a little bit of truth in that in the fact that in particular high trading volume volumes a lot of retail participation help generate or like kind of a little bit the the fuel that help all of these strategies. It's actually remarkable how much uncorrelation you find and you were talking about this and if you go across the the spectrum of of strategies alpha market neutral strategies in crypto um you can really build books which are very uncorrelated across strategies. I mean it was extremely visible obviously on Friday through the shock. Um but I mean we we we tend to build a range of strategies which you know have correlations between zero and and and 0.4.5 it's actually extremely low. I think that's one remarkable thing that you wouldn't expect necessarily. Just to build on on what you've said and talking a little bit more from a directional since we also run a a directional product where we're you know we're supposed to to create value I guess by selecting tokens and and you know through some better better understanding of the the projects informations on on flows in the market kind of build a smarter portfolio of of of liquid tokens than just you know buying the top 10 for example. Um I think there comes the question of of the benchmark or the index and so on and there's there's there fairly few in the industry but you're finding more and more like S&P has come out and produces reasonable uh benchmarks. So, you know, essentially when we think of that portfolio, the the way we try to to to define our alpha is kind of maybe put aside Bitcoin and ETH that anybody would own anyway to some extent if you would like to be fair and then look at all the rest of tokens that you're selecting and and are you actually outperforming a market neutral or equal weighted benchmark of of of tokens and I think that's kind of one of the ways how we internally try to to measure are we generating value for our investors or Um the tricky part with that is ultimately I think the for many allocators the benchmark is not an index the benchmark is bitcoin because many people will think as a space as well if I want exposure I'll get bitcoin if I'm going to move to anything else I better do better because if I'm not going to do better than bitcoin why bother right and so I think that's oftentimes the the de facto bench perceived benchmarks by at least uh allocators in the space >> thanks so much for that um for For me, it's very very simple is uh my goal is to beat Bitcoin. Um you know I I think that's a high bar. But if you consider since you know the the history of uh you know the beginning of the history of altcoins um you know it is possible to beat Bitcoin over the last couple years it's been very difficult and I think it's all about sort of selecting that right group of tokens to sort of own you know and you know now everybody tends to think that oh you should own you know Ethereum Salana uh Bitcoin but in 2022 2023 people weren't owning Salana in droves and so making thoughtful decisions around you know what things that you want as kind of core allocations I think is is you know kind of what drives the alpha um you know above um sort of just Bitcoin itself. I think it's slightly different, right? when you run a huge asset manager like like KKR um it's mainly focused on private strategies and so across the firm if you think about what Alpha generates obviously the comparison is just the public equity markets right and public equity returns um and then to some degree also like what are the other main parts of traditional investor you know endowment portfolios right so it's the the other parts uh within the within the alt portfolio that uh that an allocator basically could have. Um and that goal obviously for private equity and private credit is to basically beat their public equivalents, right? Um that's that's very clear and it has been consistently demonstrated that uh you know the best investors in in the private markets can achieve that. Obviously there's a liquidity premium um that that you basically need to beat. Um and then if you think within sort of a private equity uh portfolio both balance sheet as well as in in the funds if you then think about adding some more risk for potentially more return by you know investing getting some exposure into digital assets um then obviously on a risk adjusted basis you would have to beat the rest of the portfolio right and the rest of the portfolio can be invested in just the traditional growth or private equity um sectors um and digital assets is obviously cannot you know you cannot be overexposed to the risk and volatility in the sector but you do want to sort of add some elements to it to basically enhance enhance returns as well as build more uh uncorrelated sources of return right that's sort of basically how we think about it um I agree with you Bitcoin you know as a personal investor you know I would want to have the fund managers I invest in obviously be measured against Bitcoin because that's sort of the the the the the gold standard and that that should be the high bar that asset managers should strive towards because otherwise you know you should just hold Bitcoin, right? I think I think on that point it's a good one to uh yeah take the perspective of a potential LP who's thinking all right well I'm looking at the the the fund complex in crypto and it's it's tough it's been tough for many of them to outperform Bitcoin if they're focused on absolute return over the past few years whereas okay well if I'm concerned about volatility to your point a 50 70 asset was like okay well maybe what I'll do instead is just fix that through through positioning sizing and perhaps just do like a a cash replacement where you 5% Bitcoin, 95% cash, something like that to to to manage the the volatility of the asset class. So my question to you all is yeah, what is the value proposition for alpha in a place where it's very difficult for a lot of people to outperform Bitcoin and they can just decide on themselves how do I want to manage that volatility through position sizing? What is the value proposition to pay 2 and 20 for that alpha? you also beat other asset classes because there's a perceived unreal additional counterparty risk that you're potentially taking less and less so but that you're taking when you're exposed to crypto. Um but that I think that is your benchmark. >> But for the fund you and I are running market neutral, Bitcoin is not the right benchmark for sure because you are comparing very difficult difficult different risk profiles. Right? So if you run a market neutral fund with one of underlying bitcoin then is in theory bitcoin should outperform you 10 or sorry 5x to justify the risk you are taking by holding a directional position. And I can argue you should have directional position as you should have a market neutral as well, right? As an investor, but really it should be viewed from the prism of risk adjusted returns rather than absolute number per se. >> What's the perspective on both of your ends? You both also focus on on venture early stage private equity. Where does that composition sit within everything we just talked about? >> So private equity unfortunately doesn't yet exist in the crypto markets, right? really late stage in investment and the sector is simply too immature right um I believe it will come in the coming years but it's not yet a real asset class venture of course is something that we've looked a lot at um I believe for venture fund the goal has to ultimately be to beat Bitcoin because it's essentially a diversified altcoin >> you know uh investment asset does essentially if you believe that you know future protocols, future applications in crypto um will get you know massive prior market fit and and traction it should be able at least for the whole period to to outperform Bitcoin right um it has been very very difficult extremely difficult I don't think any funds in the last two three years have have managed uh but I think it has to be the the aspiration um I I think other funds um in sort private funds, maybe they just pick Ethereum or or some others as as the benchmark. Um, which is fine as well or like a basket of of altcoins. Um, but I think the the venture model has been challenged a lot in in the last few years. But I don't think it's as an underlying asset class but it's more the fact that um over the last 5 years most of the that have come into professional asset management in crypto have gone into venture um and and not enough has gone actually into professional liquid and especially market neutral sort of in in traditional markets you have like a 8020 sort of 80% in hedge funds and 20% actually in illquid sort of venture funds in crypto is the other way around and I think we're just starting to basically reverse that trend. It should actually we actually as an industry we need professional liquid investors. We need much more because those are the people that have professional price discovery and that can really underrite the value of the token beyond just speculation, right? Um and I I don't think enough of that is actually happening. And the other factor is actually late stage investors as well. if there's no latest stage private investments, you know, protocols and and founders are just want to like list tokens as quickly as possible, right? And and sort of join that sort of speculative uh fervor at the beginning. I think the more liquid funds and latest stage um investment as an asset class, you know, grows in an industry, the better it will actually be for the sustainability of the of the industry. I think partially why uh VC has been a preferred route for many allocators is you are shielding yourself uh from the underlying vault although the portfolio is extremely volatile right not not le than than Bitcoin itself but fundamental you're not seeing this on the quarterly basis that's kind of >> it's not smart market kind of and that is a kind of a very artificial way to kind of isolate yourself from the ling although you carry this risk anyway >> but yes that was preferred I think I definitely think that that that is true and there's probably been more allocation to venture than it has been liquid strategies and so I think that there's uh definitely opportunity for skilled people on the liquid side. Um one thing I will say is even you know over the last let's say four or five years maybe it's been hard to outperform Bitcoin. I said that Bitcoin is sort of my benchmark right. Um you know I think we need to let some of these venture portfolios ripen a little bit right like typically you have a 10-year kind of uh kind of uh fund right life and and I think um maybe in the you know two three years maybe you don't have as much fall but I think like you know in the outer years is probably where you might see the outperformance um you know of some of these venture funds. Mhm. I think as private investor also the other thing is like like probably market neutral you much more just focused on returns and you're sort of you more have like a trader mentality right as long-term investor we actually when we look at the space we look at markets and market segments and sustainability of markets can we actually underwrite the growth of markets and then the market structure that we believe in there who who are the best teams teams and the platforms that have the best chances to take market share and develop market leadership within a growing market, right? That's literally our job to kind of underwrite a market in over a multi-year horizon. And if you think about the crypto markets today, you know, what are the sectors that really have part of market fit already at scale, that is what what we sort of look um and where can we sort of find um future alpha, right? um from a from a sort of growth investing, private equity investing mindset really. I think there's like four um areas where we already seeing real product market fit. Everything else is probably I think venture narrative that's like some of that would have to you know still hit. We we're not sure yet whether that's going to work and I think the four areas really are everything around the basement of of of fiat hedging against that. So everything around Bitcoin as the denominator, you know, how can you financialize on top of Bitcoin? How can it the whole DAT phenomenon I would put in that bucket. The second one is around stable coins and RWA right stable coins being the first basically fiat being tokenized uh especially dollar that's the first use case in future there may be more financial assets that basically come on chain um and then the third one is basically trading and speculation I think a lot of the alpha has gone into previous sort of centralized venues and market making you know uh uh players in in era the future trend will be around some of that going towards onchain uh activities and That's sort of a a good trend to sort of underride and and and closely monitor. And then underneath all of these like three big themes I would say as more assets in each of these areas come on chain um you basically have that underlying DeFi layer um that enables basically new financial primitives to be built and utilized. Um basically with that growing sort of set of tokenized assets, right? um though here you have like leading players generating real revenues and cash flows right and so there you can already talk about sort of the new revenue u meta you can actually deploy fundamental analysis on some of that you can you know put multiples on some KPIs you actually look so this is getting into sort of more mature trady territories um and then a lot of the other things that are still sort of on the horizon it's still primarily a VC game I would say um so that's what I would say sort of the the current sources of of of of alpha. I would >> and I think what you're saying is exactly playing out actually. It's quite interesting to see the you know the kind of mini altcoin season we've had over the last three six months or soish. Um there's been a lot of dispersion. I mean there there the tokens that have done well are actually very few and actually many many of the themes you described are among some of the tokens you find in in those that have you know performed this year. If you look at where alt outcoins are this year, the vast majority are still under watermark or down on the year and they're just a a few that have shined which you know have generally strong fundamentals generating cash flows and so on for most part. Um and this is interesting because this is creating I think alpha opportunities for you know people like yourself or or for us for anybody who's kind of actively managed managing tokens in a space um which is professionalizing so to say if there's no dispersion if it's just all one correlation trade and everything is going up like like I was in 21 to be honest there's not that much alpha you can generate on top of that if if you have to be more selective then that's I think where you can differentiate yourself so it's a good opportunity to say >> couldn't agree more and And you know that that's why I guess the places that I try to operate is in the in the spaces where I see the greatest potential rate of change. And I actually think that DeFi is sort of one of these categories. And you know some might think of them as dinosaurs. You know they've been around for a while but they generate cash. They have moes um you know and and I think uh you know with potentially a lot of stable coin growth these things are set to you know generate more cash and the moes get even stronger. And so I I try to kind of look for these pockets where the where I expect the greatest rate of change in the community to be the strongest and I think these coins have you know you know this year at least have sort of performed well on that basis. So yeah. >> Yeah. So uh to Chasha's point earlier about this necessity for professional liquid managers who know how to effectively manage market neutral environments. We obviously had a pretty significant test about that over the weekend coming off the back of that. Um would love to hear a bit Anatoli if you could walk us through what were some of the lessons and insights that you had of that from somebody who does run a sophisticated market neutral fund. How did that go versus what your potential expectations were for such a for for such a fat failed event like that? Well uh being in a seat of a multi-manager fund you can see underlying portfolios all 76 in our case uh running risk and portfolio positions on a millisecond basis and that what gives you this kind of precise control over every single underlying portfolio. Now the things you are looking at is style drift right because many managers suddenly deviate from their desired kind of predetermined course of what strategy they are supposed to run. Then there is a alpha decay in a traditional uh kind of normal circumstances. What we saw what we saw on Friday was massive dislocations and auto liquidations when you have to rebalance your book. If one le of the trade is gone, you have to spot it within the next few milliseconds and liquidate the second part of the trade so that the book remains market neutral. So that's an amazing test, right? Uh honestly inside we want to see these sort of tests when we test our pots. Not this sort of dislocations when we test our pots because the logic is every single port which counts on the platform gets a test allocation sub 1 million and we run this for months until we have statistical confidence in these ports to scale them up up to 50 million the largest spot. But when they're in a testing stage, this is your ability to kind of monitor and uh have a deep dive in their trades. What happens on Friday really was like this like large scale test across all the the entire portfolio. And naturally, some of the pots were taken out of the market because they hit their stop limits. Uh again, all of them were testing pots, which is great because kind of you have a perfect evidence not to scale them up, right? They're out of the game. Then the good thing was that those which were in the scale up stage absolute majority of them delivered positive returns which like reinforces your confidence in them and of course we're going to continue to scale them up. So ultimately portfolio like us has multiple elements and the amount of information you are controlling is measured in a over a 100 million data points on a daily basis coming from the portfolio and all these data points are being kind of uh uh put together for the risk management uh purposes uh portfolio analytics and portfolio optimization. So we came out of Friday with one of the best days in our trading recent history which ultimately a it was positive day and ability to validate multiple strategies on the platform. >> Well said. Do you want to add? >> Yeah, I could just add a few things. I mean um obviously it was a I mean for anybody who's watching these markets is a amazing you know amazing data point to observe very stressful one quite amazing. Um and the only thing I I would add to what you've said. I mean it all makes sense. The the dispersion was pretty broad. I mean and and you can really see the the benefit of diversifying your your allocation to across type of strategies. You know you have strategies out there that you would expect. They're rather mean reverting that will you know tend to try and meaning when something drops buys assuming it's going to it's going to mean revert. Obviously these things didn't do well and lost money. Um but actually surprisingly a lot of the trend following statar there there many many strategies that did very well and I I would agree with you from what we've seen more more were positive than negative obviously a few were wiped out in the case of the the managers we allocate none were wiped out but you know some suffered liquidations and had to handle handle it um I think our result was similar like more or less splattish but I would still say for from my perspective you as you asked us you know was it were you satisfied are you happy with the outcome I think there was one one point which was dissatisfying in my opinion in my sense there are many of these typically when you get liquidations in crypto markets as a market neutral manager as a hedge fund you're usually on the winning side of this in most cases right liquidations are usually a source of can generate a lot of alpha for for managers because typically retail is getting liquidated and you get on and it dislocates prices and you get to go and trade you know you know through this dislocation take advantage of it because one a price of one future is dislocated on one exchange and it's it's not on the other one. Um in this case the the dislocation was so massive that and basically it was all market makers kind of pulling completely out of the market. The liquidities were completely dropped and the exchanges were unresponsive. And so I think for many of these players that typically you know would go and take advantage of of these type of dislocations liquidation in markets they couldn't because there was it was too little there was too little responsiveness. And I think you know I went through similar similar experience back in I think it was in May of 2021. Um lots of liquidations very dislocated uh derivative instruments but I mean huge opportunities to step in and actually as a as a hedge fund manager or any active trader take the other side of this. And I think there was it was it was harder for it was harder this time around because the because the exchanges were and in particular binance were particular dysfunctional. >> Anything you guys want to add in terms of the weekend lessons and insights. Maybe I would just add on on my side um you know we don't take leverage and it's a kind of a reminder uh you know why we don't do that because we want to take long-term perspectives on the investments that we make and one way to sort of blow yourself out of a position that you fundamentally think is good is by taking leverage and and not being able to sustain the position in tough times. So anyways it just kind of confirms that that strategy on my behalf. I think very short from high side. It's just it's the different between trading and investing, right? Like if you invest, you take longerterm views on markets and teams and products. Uh and whatever happened because of the tweet and because of leverage, it shouldn't matter your about your investment thesis, right? In fact, it's actually strengthening why portfolio should probably not be fully allocated only to liquid although I love liquid and I think you know the sector needs more liquidity. Um but you you need to have a good balance between you know the gold stand commodity which is Bitcoin. You need some decent private strategies to basically get exposure to long-term market growth. And then I I think the role of market neutral is is almost like fixed income, right? Like you you you don't want to park your cash in money market funds or banks. you want to have just stable sources of of of returns that is uncorrelated to the rest. And I think we leave it to sort of allocators to decide the allocation between the two. But fundamentally, I think there needs to be a healthy, you know, percentage allocation between these three types of allocations. Ultimately, >> it looks like this event was a non-event for you Friday, right? It was very slipless night for us. Very satisfying, but slipless. I don't think >> it didn't it didn't feel good either. But again, uh you know u I wish I had more cash is is kind of my feeling and and I kind of said uh you know in the green room that like the way I sort of um kind of hedge our portfolio is just to create more cash at certain moments and you know I guess uh yeah was a day that that that there were a lot of good buying opportunities and I had a shopping list and I almost I wish I had more cash. >> Well said. Um, so just thinking about the the market structure evolving over the next few years. Of course, uh, multistrats, pot shops in the trady world is is the bread and butter these days and now we're seeing, you know, more of it in the crypto world such as your firm. I'm curious, Nicholas, you mentioned early this this dynamic of of dispersion increasing where yeah, it used to be where there's either alter on or off. Everything's going up or everything's going down and now we just see such wide dispersion. And I'm curious how all of you are thinking about the evolution of market structure over the next years as as the industrymer matures as we get you know more multistrats into the space. What does that do for correlations and market structure overall? >> I mean I can I can talk a little bit um there there different angles to this. I'll start like kind of high level some of of the big flows. So I think one of the big changes that we've had is way more institutional flow flows particularly into Bitcoin. So it can be it obviously can be through ETFs. It's been through the the treasuries. So you're seeing a a much larger portion of the the crypto market which is you know VWAP TWAP kind of big orders going through being placed by institutions rather than you know retail u gambling if you like on on the side and and so that that proportion is changing a little bit of dynamics on top of that you add all the the call overriding that you're seeing which I think is increased quite a lot. So, you know, treasuries which are selling calls to to to generate yields, they have the fact that you have options on on ETFs now that make it way easier also for traditional players to kind of go and go and capture that uh um that premium that is that is also part of in my opinion part of the reason why the volatility is coming down on on Bitcoin for example, right? Because you're you're selling a lot of volume into the market. The the person who's on the other hand of that, the broker if you like is kind of long gamma. he's going to sell when when bit price of bitcoin goes up and he's going to buy when the price of bitcoin goes down. Um obviously a lot of that dynamic and and I think that is kind of changing a little bit the dynamic of the market. Interestingly enough it's you know obviously on the weekend all those participants are gone. So it's not much of a surprise that what happened on Friday after US close happened on Friday after US close probably wouldn't have happened this way uh during the week. So this is I think changing the dynamic of the the market quite a bit. Um I mean I I'll let you talk a little bit about you know more the the pods and and maybe all the all the those systematic teams and how they're how they're kind of changing them the the micro side of the market. But I think that that is a big a big change and right now I think I don't know how this will evolve. right now clearly that the I think the dominance of institutional flows versus those more retail frothy flows uh is is changing and that has implications on on on on markets how prices trade on on which strategies which alpha strategies work well versus not. So a lot of a lot of transition I would say right now >> and naturally you have uh all major hedge funds from traditional space are looking at crypto as a new frontier and if you look on 13F uh disclosure you would see uh Millennium with two and a half billion Sefeld with a billion uh you have Citadel with one and a half. So basically kind of every single major hedge funds see this as an expansion avenue. Now at this stage they're running relatively straightforward and easy strategies such as basis trade long ETF short uh CM future would they go into start AR RV the answer is yes it's only a matter of time at this stage there might be some regulatory restrictions as to how deeply they can engage themselves with crypto but it's coming so that's going to impact the alpha in the space and certainly they're going to be kind of alpha alpha decay and uh uh compression. Interestingly enough, when you run a multi-manager hedge fund, you are observing how alpha is changing across multiple ports. And from our perspective, that's a critical element because as some of the managers underperform because the alpha is is uh decaying, you can dynamically reallocate capital to other managers, right? And that's the beauty of multi multistrat. Now another thing is um overall kind of uh style drift which is extremely critical. Some of the managers pitch you the certain idea right certain strategy but once they start trading in certain under certain circumstances they're deviating from their puff which actually is a red flag for you as a multi multi multistrat hedge fund and this is a point of conversation for example on Friday again right uh the dislocations were so massive and performance so kind of unusually uh kind of crystallized in unusual manner that some of the managers were up 30% for the day which is subnorm abnormal right kind of we wouldn't expect from a given strategy to deliver that sort of return which from our perspective is something which going to sit down and discuss naturally are going to take it but fundamentally this is a massive style drift right and you have to be careful how you control the whole risk spectrum and how alpha is migrating from one strategy to about it. >> Um any insights on the venture side in terms of where that will evolve over the next few years you think? >> Yeah, look I think it's a simple function of like in the previous cycle the total amount of tokens in the >> crypto markets were in the thousands and maybe tens of thousands, right? And now we're basically since the whole emergence of of memes and pum fun, this is like going completely bananas, right? Like we're dealing with millions, tens of millions and and and you know being hundreds of thousands being created every day. And so that glut of over supply essentially of and and and accelerating that is basically the marginal cost of creating new tokens. Right? Before you needed at least to write a write paper and have like hire like five to 10 blockchain developers which were very expensive, right, to kind of like launch your token. Uh nowadays it's like it costs nothing, right? Like you can get liquidity very quickly. Bonding curves are basically created ready for you on on 10 different launch pads. And so that over supply will not stop, right? Whereas the demand al although I I agree right um a lot of institutions are coming yes they're they're coming but you we didn't have yet like a huge sort of in influx of new retail demand and so just looking at that I think necessarily the space has to go into more professional price discovery right like we need new mechanisms to help everyone in a sector to differentiate like what you know what is real and what is you know just attention economy right and although you will always have these pockets of attention economy network effects that will just drive you know liquidity and and demand to go in there I think there are great initiatives like the block works you know token you know transparency framework uh and then you know more and more I think uh projects will develop also investor relation functions actually basically creating data right creating reports creating relationships with professional investors which didn't exist at all right in in the last few years and I think all of this is needed essentially to >> to help you know >> address this imbalance right because that over supply will not stop and it will become easier and easier to to launch new new projects and and so yeah I'm all for like focusing on fundamentals and and revenues and having more professional liquid investors coming in and and help everyone basically differentiate between >> Yeah, absolutely. All right, one one minute left. Um Thomas, I'd love to just hear your concluding remarks in terms of where you see the the alpha world heading into the next couple years here as the as the market structure matures. Yeah, I guess big picture I would say um you know my thesis will be fundamentals will matter more increasingly over time and sometimes it it's a little hard to to see that in a given moment but I think like the trend is actually quite clear and in that direction um and maybe it speaks to a little bit the dispersion of the different liquid coin performance that we've seen and I think it actually tracks fairly nicely to what I would see as fundamentals or at least activity. Um and I think that's uh good for people that are active uh you know managers and and studying things really deeply as as you know the four of us are. Um yeah and I I would also say you know I think about sort of a what's the slope of enlightenment you got sort of Bitcoin you know furthest along behind that I would say you have you know layer ones behind that uh you know and maybe right there is stable coins behind that I think you have DeFi and so I'm looking for these places that have sort of the most inflective opportunity uh in a given period of time and and uh just trying to kind of find those pockets. >> Amazing. Well, that's all the time we have. Uh please give a round of applause for our panelists here. That was really great. Thank you guys. >> Thank you guys. Thank you. >> Thank you.
Generating Alpha in Crypto Markets | DAS London 2025 | Day 3 | Investor
Summary
Transcript
Good afternoon everybody. Can you hear me okay in the headsets? Love it. Uh so my name is Felix. I'll be doing double duty here today. I'll be the MC for this afternoon for the investors track, but I'll also be doing the first panel today which is all about generating alpha in crypto markets. So I have a stacked panel here today of of fund managers here to talk about all things alpha. A little bit of beta but mostly alpha. Uh so we'll go down the panel here and if you could just introduce yourself and what sort of strategies and what do you focus on in your fund starting. >> Hi my name is Anatoli. I'm CEO and co-founder of Nickel Digital. We are a Londonbased FCA regulated uh multistrat multi- manager hedge fund. Uh we've been in business for over six years uh running market neutral quan strategies in the space. In terms of underlying strategies, the start ARP, RV basis, funding, ARP, cross exchange ARP, HFT market making, min reversion strategies and everything is packed as a multi- multi-manager fund. You can think of us as a millennium structure whereby you have multiple trading teams under one fund umbrella and from the perspective of our investors, what they're getting is diversification across strategies and across individual PMs. Thank you. Prior to that, I was with Goldman here in London and the whole crypto equally triggered this kind of transition from banking into hedge fund world. >> Hi everyone. Um my name is Nick. Um I run Fortius. We're a crypto asset manager as well. Uh which we launched a little bit over three years ago. Uh backed by Schroers here, the you know the traditional asset manager out of out of London. Uh we run three funds, two main set of strategies. One directional long only token selection fund uh whereby we're trying to you know help investors go and you know build the right exposure to to crypto to digital assets uh which is can be a pretty tricky pretty pretty tricky task. And on the other end, we also run a market neutral fund of funds SMA platform. Um, a little bit similar to to what an Anatoli works on, but where we're running certain strategy in house, certain strategies through through SMAs, and I saw a large number through through fund allocations. >> Hi, my name is Thomas Bailey and uh, yeah, run a fund called Road Capital. We have a hedge fund and then we also have a private fund, venture fund. You know, we're very long term. I I sort of think about the liquid side as liquid venture uh and then the private side as you know true venture um yeah uh you know the small team um you know of folks and we focus mostly on bridging basically traditional finance and crypto. >> Hi everyone, my name is Sha Sha. I'm an operating partner at KKR leading the digital asset strategy as well as private equity um digital value creation. Um, KKR obviously many people know is one of the largest private investment firms in the world with 700 billion US dollars assets under management across many strategies but all like private so we're not sort of in the liquid side and then on the digital asset side uh we've been making uh investments from the balance sheet into some of the leading crypto VCs in the world as well as from our tech growth fund um investing directly into later stage cash flow generating um preipo companies um also on the private side of things looking forward. >> Awesome. Yeah. So, as we go down the rabbit hole of of unpacking alpha generation in crypto, I do want to start from the top in terms of just level setting on on all four of your perspectives and definitions of, you know, there's a lot of talk at these crypto conference and in the industry in general of what I would characterize as as beta or or levered beta and and not enough talk about some of these alpha strategies and and and on top of that as well is, you know, obviously it's quite clear in some trady worlds what your benchmark is but I would say there's there's still some debate around what is the right effective benchmark to use in some sort of alpha fund alpha strategy. So we just love to hear of all of your perspectives on those two level setting definitions. Maybe we'll start with you an >> well when we thought about setting up the fund uh our approach was there is of course beta and many people come to crypto specifically for beta but it comes naturally with volve 50 to 70%. And not everyone is able or willing to underwrite 70% of all. On the other hand, if you can build a solution which runs at single digits, right? So in our case like 5% which is onetenth of the underlying market that creates an interesting dynamics. First of all it fits many portfolios and B if you can deliver strong double digits returns you're sharp respectively two three four and that becomes extremely desirable sort of investment solution. So we have gone this rabbit hole right and even more so when you have multiple PMs on a platform each of them can run with wall of 10 12 but once they combined given the uncorrelated nature of these PMs your fund runs at much lower volatility and that what we call alpha in a sense you can avoid pit pitfalls of market corrections like this weekend right whilst delivering sustainable source of returns irrespective of market directionality. >> I mean I'll just add something to this um which I think is interesting. When I came to the space my perspective I think the perspective of many people was first you know it's all kind of one big trade right all the this uncorrelation doesn't really exist and all these strategies work at the same time they all work when retail is there and and volumes are high and and and basically everybody's money making money at the same time and and losing money at the at the same time. Um and there's a little bit of truth in that in the fact that in particular high trading volume volumes a lot of retail participation help generate or like kind of a little bit the the fuel that help all of these strategies. It's actually remarkable how much uncorrelation you find and you were talking about this and if you go across the the spectrum of of strategies alpha market neutral strategies in crypto um you can really build books which are very uncorrelated across strategies. I mean it was extremely visible obviously on Friday through the shock. Um but I mean we we we tend to build a range of strategies which you know have correlations between zero and and and 0.4.5 it's actually extremely low. I think that's one remarkable thing that you wouldn't expect necessarily. Just to build on on what you've said and talking a little bit more from a directional since we also run a a directional product where we're you know we're supposed to to create value I guess by selecting tokens and and you know through some better better understanding of the the projects informations on on flows in the market kind of build a smarter portfolio of of of liquid tokens than just you know buying the top 10 for example. Um I think there comes the question of of the benchmark or the index and so on and there's there's there fairly few in the industry but you're finding more and more like S&P has come out and produces reasonable uh benchmarks. So, you know, essentially when we think of that portfolio, the the way we try to to to define our alpha is kind of maybe put aside Bitcoin and ETH that anybody would own anyway to some extent if you would like to be fair and then look at all the rest of tokens that you're selecting and and are you actually outperforming a market neutral or equal weighted benchmark of of of tokens and I think that's kind of one of the ways how we internally try to to measure are we generating value for our investors or Um the tricky part with that is ultimately I think the for many allocators the benchmark is not an index the benchmark is bitcoin because many people will think as a space as well if I want exposure I'll get bitcoin if I'm going to move to anything else I better do better because if I'm not going to do better than bitcoin why bother right and so I think that's oftentimes the the de facto bench perceived benchmarks by at least uh allocators in the space >> thanks so much for that um for For me, it's very very simple is uh my goal is to beat Bitcoin. Um you know I I think that's a high bar. But if you consider since you know the the history of uh you know the beginning of the history of altcoins um you know it is possible to beat Bitcoin over the last couple years it's been very difficult and I think it's all about sort of selecting that right group of tokens to sort of own you know and you know now everybody tends to think that oh you should own you know Ethereum Salana uh Bitcoin but in 2022 2023 people weren't owning Salana in droves and so making thoughtful decisions around you know what things that you want as kind of core allocations I think is is you know kind of what drives the alpha um you know above um sort of just Bitcoin itself. I think it's slightly different, right? when you run a huge asset manager like like KKR um it's mainly focused on private strategies and so across the firm if you think about what Alpha generates obviously the comparison is just the public equity markets right and public equity returns um and then to some degree also like what are the other main parts of traditional investor you know endowment portfolios right so it's the the other parts uh within the within the alt portfolio that uh that an allocator basically could have. Um and that goal obviously for private equity and private credit is to basically beat their public equivalents, right? Um that's that's very clear and it has been consistently demonstrated that uh you know the best investors in in the private markets can achieve that. Obviously there's a liquidity premium um that that you basically need to beat. Um and then if you think within sort of a private equity uh portfolio both balance sheet as well as in in the funds if you then think about adding some more risk for potentially more return by you know investing getting some exposure into digital assets um then obviously on a risk adjusted basis you would have to beat the rest of the portfolio right and the rest of the portfolio can be invested in just the traditional growth or private equity um sectors um and digital assets is obviously cannot you know you cannot be overexposed to the risk and volatility in the sector but you do want to sort of add some elements to it to basically enhance enhance returns as well as build more uh uncorrelated sources of return right that's sort of basically how we think about it um I agree with you Bitcoin you know as a personal investor you know I would want to have the fund managers I invest in obviously be measured against Bitcoin because that's sort of the the the the the gold standard and that that should be the high bar that asset managers should strive towards because otherwise you know you should just hold Bitcoin, right? I think I think on that point it's a good one to uh yeah take the perspective of a potential LP who's thinking all right well I'm looking at the the the fund complex in crypto and it's it's tough it's been tough for many of them to outperform Bitcoin if they're focused on absolute return over the past few years whereas okay well if I'm concerned about volatility to your point a 50 70 asset was like okay well maybe what I'll do instead is just fix that through through positioning sizing and perhaps just do like a a cash replacement where you 5% Bitcoin, 95% cash, something like that to to to manage the the volatility of the asset class. So my question to you all is yeah, what is the value proposition for alpha in a place where it's very difficult for a lot of people to outperform Bitcoin and they can just decide on themselves how do I want to manage that volatility through position sizing? What is the value proposition to pay 2 and 20 for that alpha? you also beat other asset classes because there's a perceived unreal additional counterparty risk that you're potentially taking less and less so but that you're taking when you're exposed to crypto. Um but that I think that is your benchmark. >> But for the fund you and I are running market neutral, Bitcoin is not the right benchmark for sure because you are comparing very difficult difficult different risk profiles. Right? So if you run a market neutral fund with one of underlying bitcoin then is in theory bitcoin should outperform you 10 or sorry 5x to justify the risk you are taking by holding a directional position. And I can argue you should have directional position as you should have a market neutral as well, right? As an investor, but really it should be viewed from the prism of risk adjusted returns rather than absolute number per se. >> What's the perspective on both of your ends? You both also focus on on venture early stage private equity. Where does that composition sit within everything we just talked about? >> So private equity unfortunately doesn't yet exist in the crypto markets, right? really late stage in investment and the sector is simply too immature right um I believe it will come in the coming years but it's not yet a real asset class venture of course is something that we've looked a lot at um I believe for venture fund the goal has to ultimately be to beat Bitcoin because it's essentially a diversified altcoin >> you know uh investment asset does essentially if you believe that you know future protocols, future applications in crypto um will get you know massive prior market fit and and traction it should be able at least for the whole period to to outperform Bitcoin right um it has been very very difficult extremely difficult I don't think any funds in the last two three years have have managed uh but I think it has to be the the aspiration um I I think other funds um in sort private funds, maybe they just pick Ethereum or or some others as as the benchmark. Um, which is fine as well or like a basket of of altcoins. Um, but I think the the venture model has been challenged a lot in in the last few years. But I don't think it's as an underlying asset class but it's more the fact that um over the last 5 years most of the that have come into professional asset management in crypto have gone into venture um and and not enough has gone actually into professional liquid and especially market neutral sort of in in traditional markets you have like a 8020 sort of 80% in hedge funds and 20% actually in illquid sort of venture funds in crypto is the other way around and I think we're just starting to basically reverse that trend. It should actually we actually as an industry we need professional liquid investors. We need much more because those are the people that have professional price discovery and that can really underrite the value of the token beyond just speculation, right? Um and I I don't think enough of that is actually happening. And the other factor is actually late stage investors as well. if there's no latest stage private investments, you know, protocols and and founders are just want to like list tokens as quickly as possible, right? And and sort of join that sort of speculative uh fervor at the beginning. I think the more liquid funds and latest stage um investment as an asset class, you know, grows in an industry, the better it will actually be for the sustainability of the of the industry. I think partially why uh VC has been a preferred route for many allocators is you are shielding yourself uh from the underlying vault although the portfolio is extremely volatile right not not le than than Bitcoin itself but fundamental you're not seeing this on the quarterly basis that's kind of >> it's not smart market kind of and that is a kind of a very artificial way to kind of isolate yourself from the ling although you carry this risk anyway >> but yes that was preferred I think I definitely think that that that is true and there's probably been more allocation to venture than it has been liquid strategies and so I think that there's uh definitely opportunity for skilled people on the liquid side. Um one thing I will say is even you know over the last let's say four or five years maybe it's been hard to outperform Bitcoin. I said that Bitcoin is sort of my benchmark right. Um you know I think we need to let some of these venture portfolios ripen a little bit right like typically you have a 10-year kind of uh kind of uh fund right life and and I think um maybe in the you know two three years maybe you don't have as much fall but I think like you know in the outer years is probably where you might see the outperformance um you know of some of these venture funds. Mhm. I think as private investor also the other thing is like like probably market neutral you much more just focused on returns and you're sort of you more have like a trader mentality right as long-term investor we actually when we look at the space we look at markets and market segments and sustainability of markets can we actually underwrite the growth of markets and then the market structure that we believe in there who who are the best teams teams and the platforms that have the best chances to take market share and develop market leadership within a growing market, right? That's literally our job to kind of underwrite a market in over a multi-year horizon. And if you think about the crypto markets today, you know, what are the sectors that really have part of market fit already at scale, that is what what we sort of look um and where can we sort of find um future alpha, right? um from a from a sort of growth investing, private equity investing mindset really. I think there's like four um areas where we already seeing real product market fit. Everything else is probably I think venture narrative that's like some of that would have to you know still hit. We we're not sure yet whether that's going to work and I think the four areas really are everything around the basement of of of fiat hedging against that. So everything around Bitcoin as the denominator, you know, how can you financialize on top of Bitcoin? How can it the whole DAT phenomenon I would put in that bucket. The second one is around stable coins and RWA right stable coins being the first basically fiat being tokenized uh especially dollar that's the first use case in future there may be more financial assets that basically come on chain um and then the third one is basically trading and speculation I think a lot of the alpha has gone into previous sort of centralized venues and market making you know uh uh players in in era the future trend will be around some of that going towards onchain uh activities and That's sort of a a good trend to sort of underride and and and closely monitor. And then underneath all of these like three big themes I would say as more assets in each of these areas come on chain um you basically have that underlying DeFi layer um that enables basically new financial primitives to be built and utilized. Um basically with that growing sort of set of tokenized assets, right? um though here you have like leading players generating real revenues and cash flows right and so there you can already talk about sort of the new revenue u meta you can actually deploy fundamental analysis on some of that you can you know put multiples on some KPIs you actually look so this is getting into sort of more mature trady territories um and then a lot of the other things that are still sort of on the horizon it's still primarily a VC game I would say um so that's what I would say sort of the the current sources of of of of alpha. I would >> and I think what you're saying is exactly playing out actually. It's quite interesting to see the you know the kind of mini altcoin season we've had over the last three six months or soish. Um there's been a lot of dispersion. I mean there there the tokens that have done well are actually very few and actually many many of the themes you described are among some of the tokens you find in in those that have you know performed this year. If you look at where alt outcoins are this year, the vast majority are still under watermark or down on the year and they're just a a few that have shined which you know have generally strong fundamentals generating cash flows and so on for most part. Um and this is interesting because this is creating I think alpha opportunities for you know people like yourself or or for us for anybody who's kind of actively managed managing tokens in a space um which is professionalizing so to say if there's no dispersion if it's just all one correlation trade and everything is going up like like I was in 21 to be honest there's not that much alpha you can generate on top of that if if you have to be more selective then that's I think where you can differentiate yourself so it's a good opportunity to say >> couldn't agree more and And you know that that's why I guess the places that I try to operate is in the in the spaces where I see the greatest potential rate of change. And I actually think that DeFi is sort of one of these categories. And you know some might think of them as dinosaurs. You know they've been around for a while but they generate cash. They have moes um you know and and I think uh you know with potentially a lot of stable coin growth these things are set to you know generate more cash and the moes get even stronger. And so I I try to kind of look for these pockets where the where I expect the greatest rate of change in the community to be the strongest and I think these coins have you know you know this year at least have sort of performed well on that basis. So yeah. >> Yeah. So uh to Chasha's point earlier about this necessity for professional liquid managers who know how to effectively manage market neutral environments. We obviously had a pretty significant test about that over the weekend coming off the back of that. Um would love to hear a bit Anatoli if you could walk us through what were some of the lessons and insights that you had of that from somebody who does run a sophisticated market neutral fund. How did that go versus what your potential expectations were for such a for for such a fat failed event like that? Well uh being in a seat of a multi-manager fund you can see underlying portfolios all 76 in our case uh running risk and portfolio positions on a millisecond basis and that what gives you this kind of precise control over every single underlying portfolio. Now the things you are looking at is style drift right because many managers suddenly deviate from their desired kind of predetermined course of what strategy they are supposed to run. Then there is a alpha decay in a traditional uh kind of normal circumstances. What we saw what we saw on Friday was massive dislocations and auto liquidations when you have to rebalance your book. If one le of the trade is gone, you have to spot it within the next few milliseconds and liquidate the second part of the trade so that the book remains market neutral. So that's an amazing test, right? Uh honestly inside we want to see these sort of tests when we test our pots. Not this sort of dislocations when we test our pots because the logic is every single port which counts on the platform gets a test allocation sub 1 million and we run this for months until we have statistical confidence in these ports to scale them up up to 50 million the largest spot. But when they're in a testing stage, this is your ability to kind of monitor and uh have a deep dive in their trades. What happens on Friday really was like this like large scale test across all the the entire portfolio. And naturally, some of the pots were taken out of the market because they hit their stop limits. Uh again, all of them were testing pots, which is great because kind of you have a perfect evidence not to scale them up, right? They're out of the game. Then the good thing was that those which were in the scale up stage absolute majority of them delivered positive returns which like reinforces your confidence in them and of course we're going to continue to scale them up. So ultimately portfolio like us has multiple elements and the amount of information you are controlling is measured in a over a 100 million data points on a daily basis coming from the portfolio and all these data points are being kind of uh uh put together for the risk management uh purposes uh portfolio analytics and portfolio optimization. So we came out of Friday with one of the best days in our trading recent history which ultimately a it was positive day and ability to validate multiple strategies on the platform. >> Well said. Do you want to add? >> Yeah, I could just add a few things. I mean um obviously it was a I mean for anybody who's watching these markets is a amazing you know amazing data point to observe very stressful one quite amazing. Um and the only thing I I would add to what you've said. I mean it all makes sense. The the dispersion was pretty broad. I mean and and you can really see the the benefit of diversifying your your allocation to across type of strategies. You know you have strategies out there that you would expect. They're rather mean reverting that will you know tend to try and meaning when something drops buys assuming it's going to it's going to mean revert. Obviously these things didn't do well and lost money. Um but actually surprisingly a lot of the trend following statar there there many many strategies that did very well and I I would agree with you from what we've seen more more were positive than negative obviously a few were wiped out in the case of the the managers we allocate none were wiped out but you know some suffered liquidations and had to handle handle it um I think our result was similar like more or less splattish but I would still say for from my perspective you as you asked us you know was it were you satisfied are you happy with the outcome I think there was one one point which was dissatisfying in my opinion in my sense there are many of these typically when you get liquidations in crypto markets as a market neutral manager as a hedge fund you're usually on the winning side of this in most cases right liquidations are usually a source of can generate a lot of alpha for for managers because typically retail is getting liquidated and you get on and it dislocates prices and you get to go and trade you know you know through this dislocation take advantage of it because one a price of one future is dislocated on one exchange and it's it's not on the other one. Um in this case the the dislocation was so massive that and basically it was all market makers kind of pulling completely out of the market. The liquidities were completely dropped and the exchanges were unresponsive. And so I think for many of these players that typically you know would go and take advantage of of these type of dislocations liquidation in markets they couldn't because there was it was too little there was too little responsiveness. And I think you know I went through similar similar experience back in I think it was in May of 2021. Um lots of liquidations very dislocated uh derivative instruments but I mean huge opportunities to step in and actually as a as a hedge fund manager or any active trader take the other side of this. And I think there was it was it was harder for it was harder this time around because the because the exchanges were and in particular binance were particular dysfunctional. >> Anything you guys want to add in terms of the weekend lessons and insights. Maybe I would just add on on my side um you know we don't take leverage and it's a kind of a reminder uh you know why we don't do that because we want to take long-term perspectives on the investments that we make and one way to sort of blow yourself out of a position that you fundamentally think is good is by taking leverage and and not being able to sustain the position in tough times. So anyways it just kind of confirms that that strategy on my behalf. I think very short from high side. It's just it's the different between trading and investing, right? Like if you invest, you take longerterm views on markets and teams and products. Uh and whatever happened because of the tweet and because of leverage, it shouldn't matter your about your investment thesis, right? In fact, it's actually strengthening why portfolio should probably not be fully allocated only to liquid although I love liquid and I think you know the sector needs more liquidity. Um but you you need to have a good balance between you know the gold stand commodity which is Bitcoin. You need some decent private strategies to basically get exposure to long-term market growth. And then I I think the role of market neutral is is almost like fixed income, right? Like you you you don't want to park your cash in money market funds or banks. you want to have just stable sources of of of returns that is uncorrelated to the rest. And I think we leave it to sort of allocators to decide the allocation between the two. But fundamentally, I think there needs to be a healthy, you know, percentage allocation between these three types of allocations. Ultimately, >> it looks like this event was a non-event for you Friday, right? It was very slipless night for us. Very satisfying, but slipless. I don't think >> it didn't it didn't feel good either. But again, uh you know u I wish I had more cash is is kind of my feeling and and I kind of said uh you know in the green room that like the way I sort of um kind of hedge our portfolio is just to create more cash at certain moments and you know I guess uh yeah was a day that that that there were a lot of good buying opportunities and I had a shopping list and I almost I wish I had more cash. >> Well said. Um, so just thinking about the the market structure evolving over the next few years. Of course, uh, multistrats, pot shops in the trady world is is the bread and butter these days and now we're seeing, you know, more of it in the crypto world such as your firm. I'm curious, Nicholas, you mentioned early this this dynamic of of dispersion increasing where yeah, it used to be where there's either alter on or off. Everything's going up or everything's going down and now we just see such wide dispersion. And I'm curious how all of you are thinking about the evolution of market structure over the next years as as the industrymer matures as we get you know more multistrats into the space. What does that do for correlations and market structure overall? >> I mean I can I can talk a little bit um there there different angles to this. I'll start like kind of high level some of of the big flows. So I think one of the big changes that we've had is way more institutional flow flows particularly into Bitcoin. So it can be it obviously can be through ETFs. It's been through the the treasuries. So you're seeing a a much larger portion of the the crypto market which is you know VWAP TWAP kind of big orders going through being placed by institutions rather than you know retail u gambling if you like on on the side and and so that that proportion is changing a little bit of dynamics on top of that you add all the the call overriding that you're seeing which I think is increased quite a lot. So, you know, treasuries which are selling calls to to to generate yields, they have the fact that you have options on on ETFs now that make it way easier also for traditional players to kind of go and go and capture that uh um that premium that is that is also part of in my opinion part of the reason why the volatility is coming down on on Bitcoin for example, right? Because you're you're selling a lot of volume into the market. The the person who's on the other hand of that, the broker if you like is kind of long gamma. he's going to sell when when bit price of bitcoin goes up and he's going to buy when the price of bitcoin goes down. Um obviously a lot of that dynamic and and I think that is kind of changing a little bit the dynamic of the market. Interestingly enough it's you know obviously on the weekend all those participants are gone. So it's not much of a surprise that what happened on Friday after US close happened on Friday after US close probably wouldn't have happened this way uh during the week. So this is I think changing the dynamic of the the market quite a bit. Um I mean I I'll let you talk a little bit about you know more the the pods and and maybe all the all the those systematic teams and how they're how they're kind of changing them the the micro side of the market. But I think that that is a big a big change and right now I think I don't know how this will evolve. right now clearly that the I think the dominance of institutional flows versus those more retail frothy flows uh is is changing and that has implications on on on on markets how prices trade on on which strategies which alpha strategies work well versus not. So a lot of a lot of transition I would say right now >> and naturally you have uh all major hedge funds from traditional space are looking at crypto as a new frontier and if you look on 13F uh disclosure you would see uh Millennium with two and a half billion Sefeld with a billion uh you have Citadel with one and a half. So basically kind of every single major hedge funds see this as an expansion avenue. Now at this stage they're running relatively straightforward and easy strategies such as basis trade long ETF short uh CM future would they go into start AR RV the answer is yes it's only a matter of time at this stage there might be some regulatory restrictions as to how deeply they can engage themselves with crypto but it's coming so that's going to impact the alpha in the space and certainly they're going to be kind of alpha alpha decay and uh uh compression. Interestingly enough, when you run a multi-manager hedge fund, you are observing how alpha is changing across multiple ports. And from our perspective, that's a critical element because as some of the managers underperform because the alpha is is uh decaying, you can dynamically reallocate capital to other managers, right? And that's the beauty of multi multistrat. Now another thing is um overall kind of uh style drift which is extremely critical. Some of the managers pitch you the certain idea right certain strategy but once they start trading in certain under certain circumstances they're deviating from their puff which actually is a red flag for you as a multi multi multistrat hedge fund and this is a point of conversation for example on Friday again right uh the dislocations were so massive and performance so kind of unusually uh kind of crystallized in unusual manner that some of the managers were up 30% for the day which is subnorm abnormal right kind of we wouldn't expect from a given strategy to deliver that sort of return which from our perspective is something which going to sit down and discuss naturally are going to take it but fundamentally this is a massive style drift right and you have to be careful how you control the whole risk spectrum and how alpha is migrating from one strategy to about it. >> Um any insights on the venture side in terms of where that will evolve over the next few years you think? >> Yeah, look I think it's a simple function of like in the previous cycle the total amount of tokens in the >> crypto markets were in the thousands and maybe tens of thousands, right? And now we're basically since the whole emergence of of memes and pum fun, this is like going completely bananas, right? Like we're dealing with millions, tens of millions and and and you know being hundreds of thousands being created every day. And so that glut of over supply essentially of and and and accelerating that is basically the marginal cost of creating new tokens. Right? Before you needed at least to write a write paper and have like hire like five to 10 blockchain developers which were very expensive, right, to kind of like launch your token. Uh nowadays it's like it costs nothing, right? Like you can get liquidity very quickly. Bonding curves are basically created ready for you on on 10 different launch pads. And so that over supply will not stop, right? Whereas the demand al although I I agree right um a lot of institutions are coming yes they're they're coming but you we didn't have yet like a huge sort of in influx of new retail demand and so just looking at that I think necessarily the space has to go into more professional price discovery right like we need new mechanisms to help everyone in a sector to differentiate like what you know what is real and what is you know just attention economy right and although you will always have these pockets of attention economy network effects that will just drive you know liquidity and and demand to go in there I think there are great initiatives like the block works you know token you know transparency framework uh and then you know more and more I think uh projects will develop also investor relation functions actually basically creating data right creating reports creating relationships with professional investors which didn't exist at all right in in the last few years and I think all of this is needed essentially to >> to help you know >> address this imbalance right because that over supply will not stop and it will become easier and easier to to launch new new projects and and so yeah I'm all for like focusing on fundamentals and and revenues and having more professional liquid investors coming in and and help everyone basically differentiate between >> Yeah, absolutely. All right, one one minute left. Um Thomas, I'd love to just hear your concluding remarks in terms of where you see the the alpha world heading into the next couple years here as the as the market structure matures. Yeah, I guess big picture I would say um you know my thesis will be fundamentals will matter more increasingly over time and sometimes it it's a little hard to to see that in a given moment but I think like the trend is actually quite clear and in that direction um and maybe it speaks to a little bit the dispersion of the different liquid coin performance that we've seen and I think it actually tracks fairly nicely to what I would see as fundamentals or at least activity. Um and I think that's uh good for people that are active uh you know managers and and studying things really deeply as as you know the four of us are. Um yeah and I I would also say you know I think about sort of a what's the slope of enlightenment you got sort of Bitcoin you know furthest along behind that I would say you have you know layer ones behind that uh you know and maybe right there is stable coins behind that I think you have DeFi and so I'm looking for these places that have sort of the most inflective opportunity uh in a given period of time and and uh just trying to kind of find those pockets. >> Amazing. Well, that's all the time we have. Uh please give a round of applause for our panelists here. That was really great. Thank you guys. >> Thank you guys. Thank you. >> Thank you.