Finding Alpha in the Digital Asset Market | European Blockchain Convention

[Music] brilliant uh well good afternoon thank you for joining us on the final session the final panel thank you for a wonderful intro as well um today we're going to be speaking about finding Alpha in the digital asset markets and um joined by a wonderful panel um there should be much for you to take away much to uh obtain in terms of way of knowing how to navigate the markets and and finding Alpha there so to begin with um I just want to get some sentiment analysis in the room so can you put your hands up if you are currently bullish for uh the next three months of the market I am okay mixed if you're neutral put your hands up okay and if you're bearish put your hands up Loan Survivor you like it we'll find out why afterwards um okay great so as a a brief introduction so Jordan Walker I'm head of Business Development at re Capital uh re7 capital is a digal asset firm we run two funds a defi Yield Fund where we uh generate yield on Chain by being a strategic liquidity provider to various protocols we also have a second fund which is uh a liquid token fund where we hold a high conviction High concentration basket basket of tokens and that we conduct fundamental analysis on and then we also have re7 Labs which is our onchain uh part of the business where we do strategic uh advisory for l1s and and blockchains on my left we have hi I'm sad Rainey I'm the co-founder and CEO of stricks leviath and we're a quantitative hedge fund I'm also the founder of MAA which is is an SEC registered Robo advisor for crypto which was acquired by betterment um out of New York a couple years ago strick Leviathan um continues to operate and it is a systematic quantitative hedge fund based in the US with a offshore feeder fund um in the British Virgin Islands we our main fund as I mentioned is uh systematic but we also have defi strategies that we have layered into that fund hi I'm Cola I'm head of Alternatives funds in Quant research at seats Bank seats bank is one of the leading private banks in Switzerland in the crypto space we are a traditional family run Boutique uh private bank but we offer crypto in crypto out um we offer safe custody uh on our side we also have a sister company that runs a fund of crypto hedge funds which we've allocated to in most of our portfolios that's a mostly Market neutral uh fund of hedge funds uh yes and my name is Chris cashen I uh I'm founder and CIO of Triton liquid Triton is a um Abu Dhabi based uh directional strategy and um we are actually incubating a Quant strategy as well which we will roll out uh over the next month so ultimately uh creating a multistat fund BAS in Abu Dhabi hi my name is t uh I would like to start uh by thanking the crowd for still being here um it's a beautiful day outside so I hope that the crowd can find some Alpha in this panel what we are here for uh for is a traditional asset manager it's familyowned uh the CEO currently is Yan veg we manage globally 100 billion assets under managements of which two billion is today in crypto uh of the two billion most is in passive investment so the Bitcoin ETF the ethereum ETF in the states and then we have active funds uh a hedge fund a venture capital fund an index fund we also do some other stuff on chain um and we're trying to be as crypto native as possible as a traditional asset manager we were the first traditional asset manager to move on chain uh started from 2017 you may ask why those traditional asset managers do anything with crypto uh for us it's betting on Trends uh F has been around since 1950 5 and we are trying to see whatever trend is uh coming for investors to have some allocations to I think one of a big examples when F had um the gold ETFs in a really early um um way for getting the investor to have exposure there it was uh a long time ago but right now we have the early exposure in crypto and it's uh definitely uh beneficial for us today um for my daily operations I was Mo I'm mostly involved with the the liquid token fund which is a liquid token hedge fund based out of the Cayman entity fantastic so I'd like to start maybe at the top um kind of looking at the the macro picture we have you know a number of different elements taking place globally we've got liquidity coming back from a M2 Global Supply we have rate cuts that have taken place um how do we take all of this information and synthesize it into you know of view to ultimately generate conviction and you know hopefully Alpha in the market um Chris maybe maybe we can begin with you yeah absolutely um so one component of our strategy is to uh segment the space into 24 different verticals so these would be like dexes derivative dexes infrastructure layer ones um and uh what we do is we take all into independent variables that may impact price for that specific vertical and we create a regression model to to try to determine what the most significant variables are the impact price for specific verticals if you run this across all verticals um the most significant factors are all macro factors it's all uh liquidity it's all uh interest rates um and so I think that matters a lot and will continue to matter um until crypto begins to sort of evolve past just being um you know a macro hedge in some in some components got it and and Ty maybe just kind of getting your opinion in terms of how you guys take your world view of uh what happens in the markets to to position yourselves yeah I mean I would answer that for the for the liquid token fund uh we do have two research analysts sitting in New York um I'm based out of Amsterdam but on a daily basis we are trying to touch every every decentralized application and uh by touching those applications you can actually see how they work or whenever they have product Market fit uh so we try to bet on applications that can attract users in the future um we uh then think okay on what change can these uh applications be build so that are the smart contract layers for example Solana ethereum SOI um we then come all together as a team think about hey why does this founder or this team can produce product Market fit products um we invite them for calls we're trying to find all the fundamentals what this these Founders do in the past like did they build good product or not and and then we also have some systematic data because then you're going on chain you can see um because of blockchain Technology everything is transparent uh so you can have API keys to the blockchain trying to find how many users are using a spefic specific D app uh for example gaming if you have a new game you can from day one already see how many wallets interacted with a game and that's Alpha right there right so you can see there's maybe 10,000 people that actually interacted with a D app and then you can invest early on by your analyst that already tried the game and already see that there is some traction and user metrics from a really early standpoint if you compare it with traditional Venture Capital that's not something you can do um so I think it's a mix of fundamental and systematic data that you can uh can use in investing yeah and I I think one of the most you know interesting things when it comes to crypto is now just the abundance of data you know you have uh blockchains that are hosting so you know so much uh data that wouldn't necessarily be accessible you also have uh the element where you know markets are moving 24/7 as well so you've got two extra days over you know a course of 10 or 15 years which has increased the amount of data um that is available and and you know you then have to index it but Chris maybe just coming back to you you know you said you segment um every thing into 24 verticals how do you sort of apply uh onchain data and metrics into these verticals as well yeah so um many of our independent variables that we put into those models and regress against price for each independent vertical um they are onchain metrics and uh what's really unque about this asset class is that these are basically early stage companies right they they're a year old you know sometimes 4 years old uh but they are still fiercely competitive um Moes are low because you can effectively just uh Fork someone's code and uh launch a competing protocol um so the competitive Dynamics are are quite Fierce and uh again what we Leverage is building dashboards that look at realtime user metrics realtime retention realtime Revenue how much of that occurs back to the base token um and we believe that ultimately this will be the basis of capital allocation if this base truly evolves right um actually seeing real time uh user numbers and and how that uh that value flows back to the Token that the investors are ultimately holding um yeah and you know if we look at maybe a source of alpha when we think around you know systematic verse fundamental um maybe Cola we can get sort of your perspective here uh on the two different approaches to you know using this data and generating Alpha yeah so I think we have the luxury of sitting in the seat of an asset allocator uh we are very focused on systematics we think the opportunity set within the crypto Market of uh Arbitrage strategies whether it's basis Arbitrage cross exchange Arbitrage even Market making opportunities is much more interesting than in the traditional markets where it's been completely taken over by the Giants which are either Prop Shops uh or the citadels and millenniums so we feel there's so much uncorrelated uh value to be unlocked there that we don't really have an a core interest in going in down the fundament fundamental way our clients as I said earlier because we offer the possibility of actually owning these tokens um we can play the directionality through the actual uh just plain vanilla token holding and then add on top of that some uncorrelated returns that come from these systematic arbitrary strategies so for us it's purely systematic got it and S maybe your perspective as a Quant manager yeah um when it comes to fundamental versus systematic I mean they're both they're both valid strategies and they're both ways to generate Alpha but it really comes down to what your investor base is looking for and then what your what your investment thesis is and if you want to make a fundamental um investment in any of these assets they're so young and there's really no agreement what the fundamental analysis should really be in the long term for these assets so a fundamental strategy is going to be a Buy and Hold or a long-term Strate stry and you're going to have to you know White Knuckle it during the big draw downs and just know that you're going to have to write out massive volatility and if that's what you're okay with and that's a good strategy um we are a systematic fund we don't want to watch Things fall off a cliff repeatedly so what we're doing is we are actively managing our fund so that we're mitigating that downside and then we're capturing as much upside as possible and you know we've we've traded crypto we've traded BTC from 3,00 to 60,000 you know we've seen a massive um swing multiple times in the markets and you know we've we've exited the markets and and we know minimize the downside every every time and we believe that's the better way to go in the long term but you know you could slice and dice the last 10 years of trading and depending on the timeline that you picked you could say one is actually better than the other it just really depends on what your you know what your time frame is but I think in the long term systematic is definitely going to be the more profitable approach um which is why we're in the systematic space got it and um maybe just to to hone in a little bit in terms of your investor base and you know the demand for systematic has there been questions around you know oh would you consider a fundamental um strategy given you know you look at Bitcoin you look at the returns you know over the course of 10 years and being very you know skewed to the upside is that a question question that kind of comes up or something that you know you would ever consider um it does but I think right now a lot of the people who are wanting to make fundamental bets really are still pretty cautious and those fundamental bets are going to stay within the top 5 to 10 and there's a lot of products out there right now who who meet that demand so um you know then there's this other pocket where it's people who are wanting to make fundamental bets that are much more bets than anything on these illiquid and brand new tokens where there's no data so we we haven't offered any products that focus on the fundamentals I think there's other funds out there that that do that and do that well so you know we prefer the quantitative approach and that's what we've we've stuck to that's great and maybe just sort of Shifting Gears a little bit thinking about some of you know the market structures that have taken place um with the birth of crypto so you know now we have ETFs in Market which we've seen have performed excellently over the the course of the Year particularly in in Bitcoin less so in ethereum on a relative basis we have the birth of defi which again was a is a new existence that has come with the Inception of of crypto s maybe coming to you again when it comes to defi you know you mentioned your uh enabling some defi within your strategy I recently read a report from Alliance Bernstein and it mentioned that with the 50 bits rate cut mented by the FED um defi will be a big beneficiary given that there's you know higher yields to be obtained um within the defi Market how how are you thinking about defi within within your strategy so um it's impossible to think about defi without thinking about risk and you know we already in a high-risk asset class and then you add in defi defi which you know you just have risk coming at you from every direction when it comes to defi so you know you can get higher returns and more sustainable returns until you can't um until your fund blows up depending on what you're doing so you know we evaluate risk pretty aggressively against the defi positions that we take and you know there's some safer things that you can do like staking with you know some of the more reputable platforms and custodians um but you know when you get into Market making for some brand new or highly liquid coins and you're working with um counterparties that are difficult to diligence you know the risk factor really increases and so we have to be really careful about um how much risk we're willing to take on to get those slightly higher returns and you know when you when you do have investors that have other options that to get 8% a year and maybe some defi strategies are getting 13 does does that extra risk really justify um what that return difference is and in some cases yes some cases no Chris I I saw you lean forward did yeah I uh so I am I'm currently circling heavily back to defi we are as a fund um and uh just to make a more declarative statement I think defi is is wildly under owned and undervalued right now and I think that um if there is a regime change in the US I think you see the Unis swap Wells notice disappear I think you see a clear skies for defi um and so that is an area that we are circling back to and I think actually if you're if you're just to be super rigorous about cash flow um these are the projects that actually generate cash flow in crypto right full stop um as a as a sector so I uh I'm becoming increasingly bullish defi yeah you know as uh at re7 our our fund began really at the Inception of Defi and you know we see it is very interesting we we kind of think of it as a a fixed income style portfolio because really you're underwriting smart contracts risk um in terms of are you going to allocate or Supply liquidity per smart contract um but with new sources of liquidity and yield coming on chain in the form of real world assets or tokenized treasuries we think it represents a very interesting and big opportunity and we're beginning to see you know some of the mergence of trfi uh coming on chain or finding ways to explore and I think regulation definitely plays an import important part there and T maybe from uh the standpoint of you know Vanek trying to be as Crypton native as possible when it comes to defi how is it that you're approaching uh I guess exploring defi yes I mean that's a good question um so first of all we would love to touch liquidity and we do see more and liquidity on chain um the biggest problem is however counterparty risk uh kyc uh we don't know yet who the counterparty is and we have to wait for like more permissioned dexes that can actually tell us who is on the other side of the trades um we are looking more and more into it so from a prop trading perspective we do a little def activities um so we're getting more familiar and um more comfortable with using Defi and I would say in the next few years yes I do see van also trading on Unis swap for example um but right now whenever we don't know who the counterparty is it's not right for us to uh to do any trading and again that is also up to the compliance risk and legal department within a big uh firm like us and and maybe just touching upon sort of Market structure um you know as of today the market is fairly fragmented in terms of it's hard to have seamless liquidity it's hard to be Capital efficient you know from uh trading on one Dex to maybe a centralized exchange to a prime broker I guess maybe Coler coming to you when it comes to your setup like how is it that you guys will sort of manage um that sort of capital efficiency piece and how does that sort of play into you know enabling you not to lose percentage points because you're not able to move Capital around in an efficient manner so we work very closely with some managers we invest in uh we're very um aggressive on the terms we need in terms of liquidity um first and foremost because we want to be able to reallocate dynamically I think it's one of the largest issues that has been in the world of fund of hedge funds traditional hedge funds that have such a long period of um withdrawal so we don't really have the same issues of capital efficiencies as the funds we invest in but it is a key part of our due diligence and the way we look at it and the returns we want to deliver uh it's key for us that each of these managers has a very strong setup and ensures that their cash is always put to work and and S from your perspective um from our perspective liquidity is always um a nightmare it's for managers especially in the United States because of a regulatory and compliance trying to make sure that we can move money efficiently is extremely difficult um we don't want to put concentrated risk on one counterparty and so to spread across multiple counterparties then you're going to get especially in the US you're going to get counterparties with lower liquidity and um and not necessarily higher security so um at times we have to evaluate liquidity Advantage versus potentially some more security risks and how we mitigate those and so it's it's a constant battle you know we've traded with OTC desks we were trading on Exchange and you've got different settlement terms across different desks and it's um it's a whole side project that you have to manage when you're trying to deploy into the markets and sometimes counterparties that are really solid and have great offerings you just can't trade with them because you can't move funds in and out fast enough um and and it just eats away at your returns yeah I think you know prior to as me being at re7 was that Fidelity and you know one of the things that we were trying to Sol for very significantly is really that off exchange settlement piece and capital efficiency we know that many funds have suffered over the course of you know the last two and a bit years with some well documented and profiled exchange collapses and that's where I think we've also seen really one of the you know significant use cases of Defi and exchanges because of a level transparency that is available um there and you know again from assessing your counterparty as a smart contract purely rather than uh I guess the level of opaqueness from a a formal institution is you know one of the ways in which we think we can see you know greater opportunity which ultimately will lead you know to better Alpha um from a returns perspective when you're able to have your Capital you know more efficient and and not lose percentage points on the the topic of liquidity um maybe Chris and Taj I can get your perspective on you know when you're looking at tokens that are maybe further down the Spectrum smaller in size you know when it like how is it that you approach liquidity you know getting in and out of names um some names can be very sensitive as well what's the approach that you take yeah so uh obviously with most of the majors highly liquid you can get in and out pretty easily through any venue um but we play in the long tail of as assets uh which means that effectively we are running our fund strategy but then we are running an execution strategy on top of that fund strategy which uh is arguably as important um we use a bunch of different desks to do this uh and we have a bunch of uh algorithms that we've built ourselves uh we we lean heavily into volume weighted um algorithms which uh can get you in and out of position uh as you see volume spikes but um the further out on the risk curve you move in the space the more important this aspect becomes I could liquidate 94% of my book in 24 hours and then the rest would take like another 48 hours which uh that that level of liquidity is is pretty nice in investors like that I think I think it's the same for our liquid token fund I think 94% maybe 95 you can get out in a day but the smaller allocations on the on the right to of the of the Curve will take some time to get those out uh but we are using the same approaches as uh as Chris is doing um and that is with OTC desks that can trade the assets for us one uh very important thing for us is we don't ever leave uh assets on exchanges so at the end of the day we are always having all assets in cold custody um so that the investor is not risking any of the assets on the next change for example FDX what happened two years ago um so we can ask the OTC D to trade Assets in a week and we settle at the end of the week and then the OTC desk move first and we move second also mitigating counterparty risk there and so last week being in Singapore it was you know very interesting to kind of see the sentiment of the market more broadly and you know going to salana breakpoint there were any interesting projects that had you know entered into the market and are building um maybe coming back to yourselves um Chris and Taj when it comes to you know the overall market and you look at various sectors what sectors are of most appealing to you you know how are you thinking about let's say the next sort of three to six months but then also on a 12 to 24 month basis when you look at the market yes it's funny that you start with salana break point I would say two verticals already touch Solana that is payments and deep in um we do heavily invest in those two verticals because we believe uh first of all payments is going to happen on chain there's like one big product Market F uh that's already happening today that stable coins uh it's being used all over the world um and it's it's like how how much do they settle today like trillions a year um and I think that that is only going to continue to grow over time time and uh you have companies like PayPal Visa Mastercard uh that all partner up with these chains and Solana is being mentioned many times by these uh by these specific uh payment providers so I think payments is a nice vertical deepen is a little bit more uh yeah complex to to uh understand but is more that you have these uh notes I'm I'm going to give it a try you have this you have these notes that they uh distribute to uh people that can earn tokens by having these notes a good example is uh a project called hi mapper you can buy these dash cams you place it in front of your car you're filming surroundings and the surroundings are being um then mapped to a one big you have to compare it with Apple Maps or Google Maps and you have a street view and the this street view data is then being sold to the big parties like Apple Maps or Google Maps they are paying in US dollar and with the US dollar they will buy the tokens and the tokens are being burned from the supply creating scar which is an interesting uh metric to explain to investors um so that's also what we were talking about earlier like cash flows uh can be seen as a burn mechanism in the token Supply um so I think those two verticals with toana there's one more uh and that is of course tokenization something that has been uh said all day uh rwas uh going on chain with our traditional financial markets um when I started at fek there was also a vision for me uh we will have an in the future one portfolio on chain where we can trade crypto assets but also can trade traditional equities can trade traditional bonds and that is where I see the future is going so that's also coming back to uh uh Sadi uh why a fundamental approach in that vision is makes more sense than having a systematic approach by only betting on volatility uh yeah just to add to that all those were great points yeah so not not a ton to add but uh prediction markets I uh I've been wild ly interested in this for a long time and I think that they are just now having their breakout moment uh which is exciting um and then again defi uh I think that that is again one of the use cases that actually generates Revenue that accurs to token holders um and then last one uh Bitcoin defi I think there is a large portion of Bitcoin holders who if uh risk is low would like to generate some sort of yield on their Bitcoin that is just sitting there idly and just just to zoom in there a little bit when it comes to staking and you know Bitcoin defi uh Chris maybe you can just elaborate a little bit about you know what some of those interesting Innovations are um you make a really good point in Bitcoin you have you know CC $1 trillion that is sitting you know within this asset and that is idle and not necessarily earning return um I'm sure many of you have maybe come from a traditional Finance background whereby ultimately you want your dollars and your assets to to sweat so maybe Chris you can just talk a little bit more about uh Bitcoin defi yeah I think uh a lot of what we've seen in ethereum and salana will be replicated but then there's going to be new stuff um again as you mentioned it's the largest pool of idle Capital sitting there in crypto and I think it s to be seen whether investors just want Bitcoin to sit there and they don't want to take any other smart contract risk for you know an additional 5% per year um or whether there will be a robust Market that Springs up around lending and Defi and all these other things that we've experimented with in different ecosystems um I I'm not quite sure where I stand on that yet uh I I think that a lot of people just want Bitcoin to sit there and are not willing to take the extra risk for you know 10% 5% additional yield but I'm not a whale so well if I can just jump in there I think it's something that you mentioned earlier also talking about defy and the idea of pricing a bond somehow by getting yield I think people get caught in this false Narrative of pricing it the way we price fixed income we're talking about hack risk or fraud risk this is something that's priced by insurances and insurances struggle a lot to price their objects so I think it's a it's a false idea that we can easily price you know you're talking should should it be a 3% 5% 7% 10% what's the right price for you to put your Bitcoin at risk through a smart contract and I think that's something that's still very inefficient and we don't have a clear answer to that and we'll see as you say time will tell how investors will act but it's just something I I really wanted to make clear that don't get confused and don't assume it's a default risk you're not taking Equity risk with the foundation you're taking fraud or um hack risk yeah and uh maybe sad just from your perspective when it comes to sort of the areas of interest for you over the next 6 months 12 months and 18 months which area of the market uh takes interest for you um from a fun perspective I would say it's it's going to be layer ones um we know we we tend to trade in the top 20 to 30 and it's for us it's liquidity and volume that we're looking at so it's it's going to be the layer ones you know we're always looking at what's coming in and what's new and you know evaluating whether or not it would fit with our strategies but you know anything new is probably not going to pass our diligence and our risk process so you know we're always looking to to see what's out there but um I don't see anything in the next year that's going to get too exotic and fun but on a personal perspective I mean I love all the stuff that everyone on the panel has mentioned because there's just so many really interesting and amazing things that are coming online and you know those are where personally in my PA I'm making the fundamental bets because you know I I really like what a Project's doing I really like the tokenomics behind it or or the use case that I'm seeing or sometimes even just the team that's involved so you know I'm always looking out there there's there's wild and crazy crypto tokenization projects and nfts and um privacy nft related projects they're just fascinating so to me I'm making my fundamental bets in my PA and and across the board but for the fund we're we'll be looking in the more vanilla layer ones yeah and I think that's you know one of the great things of this industry there are you know every day something new that is coming up and of course as managers it becomes important for us to sift through what is good and what is not good um Coler maybe just uh a final piece on your perspective when it comes to uh Capital coming into this space you know I'm sure you're speaking with a vast array of you know institutional uh investors and crypto native as well uh where do you see Capital coming from and you know how will you be allocating it yeah I think we've heard a lot today about people talking up the game thinking how fantastic and institutionalized the space is um to some extent it has evolved a lot but we're really really far away I think people under all we we got all got or at least us here that are crypto familiar got super excited with the ETFs there have been massive flows there but when we see our Solutions we're getting family offices we're getting high netw worth individuals we're getting ultra high netw worth individuals interested we're not seeing the Pension funds the Pension funds come they see the product and they're going to say this looks fantastic but I don't trust it yet oh how how can I go to my board and tell I want to put this product um in my pension fund so I think there's still ways to go before we get to that actual adoption and we all kind of got into this super excited mood around the ETFs but I think there's still many legs more uh before we actually see the truly ganton institutional players uh walk into the space and uh just in the final s minutes uh just some quick fire questions for you all so sad maybe starting with you salana or ethereum oh salana salana salana yeah salana that's our largest current position I would say Solana but also suie okay uh Bitcoin above 100K by the end of 24 yes or no this is not investment advice right not investment advice I would love to see that do I think I'll see that probably not no uh yes and I I think it's path dependent right obviously as all things are but um I think if Bitcoin breaks 100k this year it's going to blow P that pretty aggressively let me start by saying this is not Financial advice again um but yeah I I would say yes it's uh it's going above 100K and why do I think that everything is lining up this year you have the liquidity cycle it's just starting to get up you have the Bitcoin haling you have the elections you have the monetary policy there's a great research that was out this year by the Unis Swap and a university that looked at the impact of monetary policy on the Bitcoin price and it was the uh best effect that uh the greatest impact was of course the monetary policy and not adoption so I think if you look historically where we are today the last three months of this year are going to be super good for Bitcoin and 100K is on the minimum and just to to add my two pence I I also agree I think the environment that we have um set up at the moment definitely you know provides a prime opportunity whereby we we could see that and of course not investment advice um hopefully this has been a useful conversation for all of you I hope that the takeaway has been one there is a lot that goes into you know deciding and managing and you know funds as a whole I hope that you feel like you can take some of that away but I also hope that you also feel comfortable that that needs to be done professionally because there is a lot that goes into it and yeah I'd love to thank uh the wonderful panel for your insights and we'll be around for some questions at the end thank you thank you thank you thank you