Quant Trading Company Surviving 2022 with 8% Plus | coindesk JAPAN | Coindesk Japan

Crypto quant trading firm Pythagoras Investment Management LLC weathered 2022 turmoil on a positive note. The fund posted an 8% year-on-year gain despite exposure to the FTX collapse and other factors. That said, the market turmoil has forced some investors to take a wait-and-see approach, cutting assets under management in half to below $40 million.

Pythagoras founder and CEO Mitchell Dong says his company’s market-leading strategy, changing risk mitigation strategies after the collapse of FTX, and the future of crypto still holds hope. He talked about why he thinks.

Market Neutral Fund Strategy

The company’s Pythagoras Arbitrage Fund was up just 0.1% in December, but is up 8.8% for the full year 2022.

“We just look for spreads. Every time the software sees an opportunity, it looks for a buy low and sell high opportunity at the same time,” said Dong, who has more than 25 years of hedge fund management experience.

The trend-following Momentum Fund fell 0.4% in December, but is still up 8.1% in 2022. The fund takes both long and short positions based on technical indicators.

FTX bankruptcy

The main threat to the company’s Arbitrage Fund is counterparty risk. In order to trade instantly, the company needs to deposit assets on exchanges. Pythagoras says it spreads its assets across at least 12 exchanges and never deposits more than 10% of its assets on any one exchange. Before the FTX bankruptcy, the company had 10% of its assets in FTX.

After the FTX bankruptcy was reported, the company immediately requested withdrawal of all assets, but only 7% were recovered. The remaining 3% loss comes from first shorting FTX’s exchange token, FTT, and then Chicago Mercantile Exchange (CME) Bitcoin and Ethereum futures, each 3-5% below Binance’s price. It was offset by taking advantage of the fact that it was 10% cheaper.

Pythagoras has since stepped up its risk management on exchanges, now prioritizing exchanges that have the best technology and credit ratings and are judged to have the lowest counterparty risk.

current market trends

Dong asked for the money back and held talks with the company’s big investors, who wanted to pull out until the situation calmed down. These investors have a long history with Pythagoras and plan to resume cryptocurrency investments in the future.

“The bad news is that we got refunds. The good news is less competition, more price volatility and more trading opportunities. The arbitrage opportunities that were there before are back again,” Dong said. .

｜Translation: coindesk JAPAN
｜Editing: Takayuki Masuda
｜Image: Mitchell Don (Pythagoras Investment)
｜Original: How a Crypto Quant Firm Shook Off the Bear Market – and FTX Exposure