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Novogratz's Crypto Trading Desk Lost $136M in Nine Months

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Re: Novogratz's Crypto Trading Desk Lost $136M in Nine Months

#81

Post by revel »

lordnacho wrote: post #12

The article is missing some critical details. 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 con…

I think you're completely right that his fund isn't just performing straight up arb. In fact, I don't think it can generating most of its P&L from arb since (from what I remember at least), Galaxy Digital simply has too much capital to put it to use with an arb strategy alone.

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.

Re: Novogratz's Crypto Trading Desk Lost $136M in Nine Months

#82

Post by user5994461 »

wpietri wrote: post #45
AznHisoka wrote: post #9

Earlier quoted context omitted.

One of the best kept secrets in the hedge fund/financial industry is that most people really dont have a clue what they are doing. Sure they make bold predictions, appear on CNBC and use industry jargon. But at the end of the day, they arent much better than you or me at managing large amounts of money.

An opinion shared by Warren Buffett. He bet a hedge fund guy $1m that an index fund would beat a portfolio of hedge funds. Buffett won handily: http://longbets.org/362/

And Warren Buffet was wrong. The hedge fund manager made more money than what the customer would have done in an index fund.

Re: Novogratz's Crypto Trading Desk Lost $136M in Nine Months

#83

Post by bhaak »

polkapolka wrote: post #77
bhaak wrote: post #72

Earlier quoted context omitted.

What do you mean by "manually"? The general web page of an exchange is horrible slow compared to their APIs and often breaks during high volume periods.

Did you run into latency problems doing arbitrage this way? Or do you rely on API's?

I didn't do arbitrage but running bots for statistical data via API. I think latency is not even the big problem, although of course you have to account for it when doing arbitrage. The latency can be quite high even during calm periods (also don't forget that exchanges can be on different sides of the globe, that already adds quite a bit of latency).

During times of high volumes as in the period of the last rally, the websites of many crypto exchanges break easily and even the API are not that stable.

You can also see that on reddit. Every time the price spiked, you got people complaining about exchanges breaking. There's still a long way to go for crypto exchanges.

Re: Novogratz's Crypto Trading Desk Lost $136M in Nine Months

#84

Post by ivalm »

blake8086 wrote: post #26
owenversteeg wrote: post #11

“Remember, bubbles happen around things that fundamentally change the way we live,” he said. Ah yes, I remember how beanie babies changed the way we all lived. And tulips, of course. And rhodium? Hmm.

And dot-coms! And real estate! Hmm.

Those aren't commodities (unlike tulips, beanie-babies, and crypto).

Re: Novogratz's Crypto Trading Desk Lost $136M in Nine Months

#85

Post by user5994461 »

AznHisoka wrote: post #9
simias wrote: post #3

I mean, given how hard cryptocurrencies crashed this year is it really a surprise? The only way for him to make money would probably have been to short everything continuously but seeing how irrational and easily manipulated the cryptocurrency market has been in the past that seems rather foolish. Given his pedigree you'd think he'd know better than to bet on something that's 99% pure unbridled speculation and 1% act…

One of the best kept secrets in the hedge fund/financial industry is that most people really dont have a clue what they are doing. Sure they make bold predictions, appear on CNBC and use industry jargon. But at the end of the day, they arent much better than you or me at managing large amounts of money.

I'd say the exact opposite. One of the best kept secrets in the industry is that people know exactly what they are doing.

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.

Re: Novogratz's Crypto Trading Desk Lost $136M in Nine Months

#87

Post by iaw »

kolbe wrote: post #65
blake8086 wrote: post #26

Earlier quoted context omitted.

And dot-coms! And real estate! Hmm.

I don't remember any innovation around real estate that changed our lives within the past few decades (or millennia even).

I think ~100 years ago they really got into vertical construction but other than that (and possibly central plumbing) your point stands..

Re: Novogratz's Crypto Trading Desk Lost $136M in Nine Months

#88

Post by elhudy »

mortenjorck wrote: post #78
bhaak wrote: post #25

Earlier quoted context omitted.

This interview[1] sounds like they called bottom at 6k and then the floor fell out: "We thought it was a bear market. I went into it thinking in the long run crypto is going to be a real structural shift in the world and I can just hedge my portfolio. And to be fair, we did a really great job not losing money the first 60 percent down. What you forget is that a market like Bitcoin that’s down 84 percent has dropped 6…

I was pretty sure $6-7k was the floor for BTC, and it’s interesting to see a high-profile fund manager made effectively the same, expensive mistake. The biggest surprise for me, though, was ETH, which given its better fundamentals, I had thought would be where the market went after Bitcoin popped – and yet, it was not only dragged down, but crushed even harder than BTC.

What "fundamentals" exist for Eth that allow it to be valued at a specific price point? Eth has no earnings, no assets, and no liabilities. Its intrinsic value is close to 0. It could be totally wiped off the planet tommorow and almost nobody besides crypto traders would care. Crypto trading should be based on technical analysis not "fundamentals".

Re: Novogratz's Crypto Trading Desk Lost $136M in Nine Months

#89

Post by ianferrel »

vec wrote: post #66
wpietri wrote: post #45

Earlier quoted context omitted.

An opinion shared by Warren Buffett. He bet a hedge fund guy $1m that an index fund would beat a portfolio of hedge funds. Buffett won handily: http://longbets.org/362/

I'm a complete layman whose only knowledge of the financial system is derived from podcasts and magazine articles, and hindsight is always 20/20, but wasn't this always an obvious sucker bet? As I understand it, a hedge fund is supposed to be, well, a hedge . It's not supposed to make more money than the market when the market's doing well. It's supposed to be uncorrelated from the rest of the market, with the hope t…

"hedge fund" is kind of a misnomer these days. They started out as actual hedges, but now refer to basically any fund that makes use of complicated securities and active management.

But, yeah, it was likely a sucker's bet.

Re: Novogratz's Crypto Trading Desk Lost $136M in Nine Months

#90

Post by JohnJamesRambo »

bhaak wrote: post #25
lordnacho wrote: post #12

The article is missing some critical details. 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 con…

This interview[1] sounds like they called bottom at 6k and then the floor fell out: "We thought it was a bear market. I went into it thinking in the long run crypto is going to be a real structural shift in the world and I can just hedge my portfolio. And to be fair, we did a really great job not losing money the first 60 percent down. What you forget is that a market like Bitcoin that’s down 84 percent has dropped 6…

6k was the bottom and then a black swan event happened, at the worst possible time, when Bitcoin Cash forked again and the owners of the two forks had to childishly sell tons of bitcoin to fund their hashpower war. I don't think that was a predictable event.
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