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

135 points by shshhdhs 8y ago

jeletonskelly 8y ago
FYI - article is from November. He's still bullish...
- matt4077 8y ago
  His stock, however, has only fallen an additional 10% or so since then (It’s hard to see exactly on the charts, because the stock price has fallen so fast +/- 10% is now a matter of just two or three pixels)
simias 8y ago
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% actual technology. It's like knowingly investing in a Ponzi scheme, what did you expect?
- AznHisoka 8y ago
  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.
  - misiti3780 8y ago
    to back this up, read the expose in the economist this week about family offices and how they all divesting from hedgefunds because the fees are ridiculous and they are doing no better than the S&P, usually worse when you take into account the onerous fees those mgrs are charging.
    - ecshafer 8y ago
      This is literally what vanguard has been saying doe 40+ years and is their main business model.
    - dragontamer 8y ago
      To be fair, when you have $100 Million, the goal of the game is not "growth", but holding onto that money. $100 million isn't much different from $108 Million (8% gains over the year)... or even $500 Million. In both cases, its still more than enough money to live on for the rest of your life. The S&P 500 has dropped 50% in the past (ie: 2008), and it doesn't make sense to risk that much money on that. You can't use bank accounts: FDIC insurance only covers $200k per bank. You'd literally need 5000 different bank accounts to hold $100 Million safely. So what do you put it into? Answer: things that don't grow as quickly as an S&P500 fund. Things that are safer: municipal bonds, international (German, Japan) bonds to hedge the dollar, and US Bonds. Maybe some high-quality corporate debt, like Apple's debt, and maybe a real-estate project or two. All of which probably returns less than the stock market. But your $100 Million will still be there in the next crisis. That's not necessarily true for an S&P500 fund. ------------ Finally, the average volume of Vanguard Total Market ETF is only ~3-million (at a price of ~130 or so). Which means that Vanguard Total Market ETF only has ~$300 Million changed each day. If you pump $100 Million into an ETF with only $300 Million worth of daily average volume, what do you think will happen? You'll over-centralize the price and get a bad deal. Its not easy to move $100 Million, even into a major fund like Vanguard's Total Market ETF, without a manager. At $100 Million+ size portfolios, you need to start thinking of Dark Pools of Liquidity (ie: somewhat hiding the order book). So that when you execute the buy order, the wolves of Wall Street won't own you. $100 Million+ accounts don't work the same as a normal account. Pump that into the market in one day, and the price will rise dramatically. Sell that in one day, and the price will drop dramatically (losing a % of your value on both legs of the transaction). Having an expert guide you, so that you can minimize Bid/Ask issues, is essential.
      - wpietri 8y ago
        > To be fair, when you have $100 Million, the goal of the game is not "growth", but holding onto that money. What's your evidence for that? Sure, they don't want to lose, but nobody does. And if anybody likes to get richer, it is pretty clearly rich people. Even the charity-focused ones want to keep increasing their resources, as that lets them have more impact.
  - paulie_a 8y ago
    It's always sad when I get my upwards of 10 percent by professionals. I personally get 500-1000 percent return year over year. I'm working with small amounts of money that if I lost entirely wouldn't be the end of the world. But some years they barely beat inflation.
    - robk 8y ago
      How??
      - wpietri 8y ago
        You think he'll tell you for free? Nah. To learn the amazing secret to claiming to make a lot of money, you have to send him a lot of money. There are rules.
        Topgamer7 8y ago
        Or buy this ebook for $9.99. Thousands of dollars in value, only $9.99. Get in on this limited offer!
      - module0000 8y ago
        He'e eluding(likely) to the commodities market. You can make double your money on a mediocre trade. You can also lose 100% of your money on a similar mediocre trade.
        dgacmu 8y ago
        Alluding. :)
        paulie_a 8y ago
        Nope just straight stock with my Scottrade account. In my younger years 77 dollars of stock ended up paying for a pretty decent copay for a surgery.
    - mikkom 8y ago
      > I personally get 500-1000 percent return year over year. Numbers like this are always quite funny to me. What does year over year mean in this context? 5 years? 10? If you would start with $1000 then in 10 years you would be at approx. 976 million with only lower part of your profits (500%).
  - wpietri 8y ago
    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/ http://longbets.org/362/
    - vec 8y ago
      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 that it can maintains or even gain value in the event that the rest of the market tanks. An asset class that could reasonably be expected to substantially outperform both a bull market and a bear market isn't a hedge against anything, it's just a strictly superior asset class and we're pretty good at arbitraging those out of existence in relatively short order. With that in mind, doesn't this basically devolve to a bet that at least a whole decade's worth of economic growth was going to be consumed entirely by a massive recession? That's not wholly unprecedented, admittedly, but it is a lot rarer than I'd be comfortable putting any money on at flat odds. What am I missing?
      - ianferrel 8y ago
        "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.
      - SatvikBeri 8y ago
        Yes, it was a sucker bet. The funds Protege picked were actually funds of funds that basically had a .6 correlation to the S&P 500. So Buffett was almost guaranteed to win if the markets went up over 10 years, and lose if they went down. And it's very rare for the market to be down over a 10-year period. Honestly I have no idea what Protege was thinking.
  - mv4 8y ago
    I am beginning to wonder, seeing the increased rate of hedge fund liquidations this quarter.
  - user5994461 8y ago
    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.
    - SatvikBeri 8y ago
      The strategies that tend to work are boring and low capacity, so they don't get much advertising, and people don't hear about them. There's a massive saliency bias in that the strategies people are most likely to hear about are ones with some excitement behind them – that gives people a massively distorted view of hedge funds.
- deleted 8y ago
  [deleted]
- gammateam 8y ago
  > "Huge gains in production from Texas, California, and Oklahoma quickly eliminated the regional shortages of 1920 and induced a downward trend in bitcoin prices over the next decade, with bitcoin prices falling 40% between 1920 and 1926. The decline in demand associated with advent of the Great Depression in 1929 magnified the price impact of phenomenal new discoveries such as the gigantic East Texas field which began production in 1930. By 1931, the price of bitcoin had dropped an additional 66% from its value in 1926." paraphrased from https://econweb.ucsd.edu/~jhamilto/oil_history.pdf https://econweb.ucsd.edu/~jhamilto/oil_history.pdf Passive retail traders were never in commodities trading. Retail trades stocks. Retail has been trading digital assets like penny stocks. GTFO of the digital commodities market if you don't swing trade supply and demand or actually use it.
  - JohnJamesRambo 8y ago
    I keep rereading this comment, trying to understand what you are trying to say.
    - gammateam 8y ago
      Commodities are volatile and seasonal Bitcoin is a commodity steered by the same level of supply and demand pressures but held to a higher fictional standard by people that trade and evaluate it like a different asset class (equities)
      - tim333 8y ago
        It's not really a commodity like oil. I feel The Onion was closer in calling it "crazy imaginary internet money" https://www.theonion.com/bitcoin-plunge-reveals-possible-vulnerabilities-in-craz-1821134169 https://www.theonion.com/bitcoin-plunge-reveals-possible-vul...
        gammateam 8y ago
        Why isnt it also a commodity like oil? it is the fuel for its blockchain. You cant use that public resource without it. It is built to plunge and surge just like oil prices do, based on supply and demand, which also comes in seasons just like oil. Most commodities have seasonal patterns. Bitcoin trades like those. It isnt controversial when a conmodity plunges and surges. Its actually better for different parts of the population at different times.
- thesausageking 8y ago
  > Given his pedigree... Novogratz is a fun character and a good fundraiser, but he doesn't have a pedigree as an investor. He became famous (and a billionaire) by taking Fortress public. Under his watch, it then went from $35 to down below $2. After he was demoted, he ran a macro fund there which performed awfully and, in 2015, it was shutdown and he was forced into "retirement".
  - Alex3917 8y ago
    I was in his office chatting with him a year and a half ago, on the exact day of June or whenever the market hit its bottom, and he called that that day was the bottom. He does things that don't always make a lot of sense to me, but he wouldn't be a billionaire if he wasn't getting a lot of stuff right also. E.g. he also bought 500k worth of ETH and sold it for 250M. Paid his taxes, bought a new plane, and donated the rest to charity. His LPs might be nervous, but he's probably doing just fine.
    - thesausageking 8y ago
      Hard to verify what you're saying. June wasn't a bottom for ETH and the most he could've made with that trade was ~4x. But even if you're right and he did make a great trade, that doesn't make him a genius. He's a gambler and sometimes gets a great hand. He was super bullish on EOS before it tanked. He very publicly called a bottom[1] for BTC on Sept 13th when it was $6,300 and it's down by ~50% since. [1] https://twitter.com/novogratz/status/1040288811643809798 https://twitter.com/novogratz/status/1040288811643809798
      - Alex3917 8y ago
        Ahh I was thinking of July 16th, 1017. ETH went from over $400 in June down to $133 in July. https://coinmarketcap.com/currencies/ethereum/historical-data/?start=20130428&end=20181219 https://coinmarketcap.com/currencies/ethereum/historical-dat...
KasianFranks 8y ago
More proof from HN that cryto is bad.
- hassan_shaikley 8y ago
  It has its uses. It's just not free real estate.
  - all2 8y ago
    > https://morningchores.com/free-land/ https://morningchores.com/free-land/ Even free real-estate has its drawbacks.
dkoston 8y ago
It amazes me that funds hold long positions in a market without safeguards and regulations and that really has yet to formalize. I'm bullish on digital currencies but there's going to be a ton of turmoil while the world figures out how to deal with this new asset class and major shake ups as regulations start to formalize or continue to formalize in some cases. Long plays in this market are massively risky bets. They seem completely unnecessary as well. With the volatility that exists and the decent level of volume, there's tons of easy money to be made.
- tim333 8y ago
  Normal investment funds don't pretty much. Hedge funds are less regulated and and can punt on pretty much anything.
ham_sandwich 8y ago
From what I read when the firm launched, I thought this operation would behave like a traditional market making desk, profiting from spreads and hedging aggressively. If anything volatility would help P&L, but I guess there just isn’t enough volume or liquid crypto derivatives to hedge effectively.
owenversteeg 8y ago
“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.
- blake8086 8y ago
  And dot-coms! And real estate! Hmm.
  - bduerst 8y ago
    Ships can't ever sink when all you look at are the ones that are still floating.
    - carbocation 8y ago
      This is a beautiful description of immortal time bias.
  - quickthrower2 8y ago
    Real estate is as old as humanity
    - dragontamer 8y ago
      No. Its only as old as modern society. The idea of a private citizen owning land was not generally accepted in the medieval age of kings. Only lords and other nobility could own land back then. Technically, the king owned the land, and the Lords were simply stewards of the King... probably indirectly (King -> Count -> Lords) Eventually, real estate could be owned by the common peasants and merchants, but that starts to get into modern capitalist style society. For some details, see this article: https://en.wikipedia.org/wiki/Quia_Emptores https://en.wikipedia.org/wiki/Quia_Emptores
      - JumpCrisscross 8y ago
lordnacho 8y ago
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 convincing. I've also heard that plenty of arb guys are doing fine. If he's speculating and not just running arbs, what is he doing? If he's just punting the cryptos that would seem more in line with what's happened, but it's not clear what he's up to from this. Also, with arbitrage it's limited how much capital you need. A lot of HFTs use very little. If you're getting money like a hedge fund you have to be sure it can be put to use. Ex HFT and fund manager.
- GreaterFool 8y ago
  I also hear arb is doing fine. I wonder how it works though. Most exchange APIs are terrible and it is simply not technically feasible to do anything using those APIs. Also prices at too many exchanges move in absolute lockstep. Must be private, privileged access to better (internal) APIs, profit sharing, rip the face of "retail" investor kind of deals. After all the "exchanges" are not really exchanges as we know them in other markets. They're more like forex trading. I think the crypto market would benefit from a (semi-)regulated impartial exchange where other firms can become members and act as brokers to direct retail flow. But unless there's some sort of regulation about it it would just be a private business that could kick out any member for any reason. To much risk for the members.
  - polkapolka 8y ago
    You bypass the API completely and fill orders "manually".
    - bhaak 8y ago
      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.
kilo_bravo_3 8y ago
I like how cryptocurrencies were launched as an alternative to central banking, wresting control of money away from the government and big banks. An open and level playing field that would democratize how people transact financially with each other. And then the first thing the early adopters did was recreate the flawed financial institutions that surround "real" money so that they could pretend to be Gordon Gekko and throw around words like "arbitraaaaage". Is there data on what percentage of cryptocurrency transactions are "Real, actual, humans buying and selling real, actual, things or compensating each other for their ideas and thoughts" and what percentage consists of "traders shouting at each other in the echo chamber"?
- Filligree 8y ago
  All you have to do is look at the buy/sell curves. Crypto is 80% market manipulation, 19% traders and maybe 1% genuine use.
  - JumpCrisscross 8y ago
    > All you have to do is look at the buy/sell curves What the hell are buy/sell curves?
    - orbifold 8y ago
      How the orders are distributed in the order book.
      - module0000 8y ago
        This is incorrect. Orders and their distribution in the order book is called liquidity. Alone, they have very little meaning, and are often manipulated in the securities and commodities market(ie: you see a 5,000 bid, and place your own 5,000 ask - suddenly the bid is gone, and your ask gets rolled by huge buy orders). "Buy/sell curve" has no meaning, the closest term would be "yield curve", such as US interest rates. As the rate climbs and falls, there are inverse effects on financial instruments.
Scoundreller 8y ago
I found this article pretty good about the whole IPO “experience”: https://equity.guru/2018/08/01/galaxy-digital-holdings-glxy-v-debuts-market-early-investors-willingly-hooped/ https://equity.guru/2018/08/01/galaxy-digital-holdings-glxy-...
pavlov 8y ago
Here’s a deep New Yorker profile of the man and his crypto ambitions from the more halcyon era of April 2018: https://www.google.co.uk/amp/s/www.newyorker.com/magazine/2018/04/16/a-sidelined-wall-street-legend-bets-on-bitcoin/amp https://www.google.co.uk/amp/s/www.newyorker.com/magazine/20...
kennxfl 8y ago
I actually thought given the size of the position, he was part of the group manipulating transactions in order to liquidate at the top. Holding those positions long term doesn't seem smart.
NicoJuicy 8y ago
You can't win in a losing market ( market capitalisation). I explained it to a friend of mine and he didn't want to hear it. Now we're one year further and he says it will go up again... Some people just don't understand :)
- tim333 8y ago
  You can short it on the way down, in principle.
apo 8y ago
This article was published November 28 of this year. From mid-November to now, cryptocurrency exchange rates have fallen by about 50% across the board, with some much higher. This move took many speculators, including Novogratz, by surprise: "I did think Bitcoin was going to hold at $6,200," said Novogratz. "It stayed there for four months. It felt like the selling was finished. But then Bitcoin Cash decided to fork again." https://www.forbes.com/sites/billybambrough/2018/12/12/bitcoin-bull-mike-novogratz-has-a-stark-warning-for-the-crypto-community/ https://www.forbes.com/sites/billybambrough/2018/12/12/bitco... I suspect many of these speculators are betting on a quick recovery. Should that not pan out, Novogratz and many others are headed for a world of pain. Meanwhile, Bitcoin the technology continues chugging on. The most noteworthy development is the rapid build-out of the Lightning Network scaling solution, but there's a bunch of stuff beyond that which gets almost no attention.
- JumpCrisscross 8y ago
  > Novogratz and many others are headed for a world of pain Management fees make for good medicine.
- village-idiot 8y ago
  Lightning is never going to happen. They have absolutely no idea how to scale that network or handle the routing problem. The entire system is just rife with potentials for monopolies and abuse. No consumer in their right mind would ever commit their money to it.
  - apo 8y ago
    Lightning is never going to happen. It's happening right now: https://bitcoinmagazine.com/articles/progress-report-lightning-network-surpasses-1m-btc-capacity-4000-nodes/ https://bitcoinmagazine.com/articles/progress-report-lightni...
    - village-idiot 8y ago
      For something that’s supposed to compete with Visa, $1m isn’t exactly “happening”. Edit: supposedly there is $62 billion worth of BTC sloshing around out there. If you take that number at face value, then close to .0016% of BTC has been committed to the lightning network. This is not “happening” by any stretch of the imagination.
wgpete 8y ago
This guy showed up on bloomberg businessweek wearing a blazer and track pants. usually a recipe for losing that sum of money as a boomer....
alanmeaney 8y ago
Picking up pennies in front of a steamroller
granaldo 8y ago
With bitcoin down nearly 80% since all time high and the others down 90% (https://www.coingecko.com/en?view=all_time_high https://www.coingecko.com/en?view=all_time_high) Not surprise anyone who came in and trade may be catching knives. Plus all the uncertainties in market participants
imron 8y ago
Buy high, sell low
arisAlexis 8y ago
point? alternative investments are risky?

135 points by shshhdhs 8y ago

jeletonskelly 8y ago

FYI - article is from November. He's still bullish...

matt4077 8y ago
His stock, however, has only fallen an additional 10% or so since then (It’s hard to see exactly on the charts, because the stock price has fallen so fast +/- 10% is now a matter of just two or three pixels)

simias 8y ago

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% actual technology. It's like knowingly investing in a Ponzi scheme, what did you expect?

AznHisoka 8y ago
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.
- misiti3780 8y ago
  to back this up, read the expose in the economist this week about family offices and how they all divesting from hedgefunds because the fees are ridiculous and they are doing no better than the S&P, usually worse when you take into account the onerous fees those mgrs are charging.
  - ecshafer 8y ago
    This is literally what vanguard has been saying doe 40+ years and is their main business model.
  - dragontamer 8y ago
    To be fair, when you have $100 Million, the goal of the game is not "growth", but holding onto that money. $100 million isn't much different from $108 Million (8% gains over the year)... or even $500 Million. In both cases, its still more than enough money to live on for the rest of your life. The S&P 500 has dropped 50% in the past (ie: 2008), and it doesn't make sense to risk that much money on that. You can't use bank accounts: FDIC insurance only covers $200k per bank. You'd literally need 5000 different bank accounts to hold $100 Million safely. So what do you put it into? Answer: things that don't grow as quickly as an S&P500 fund. Things that are safer: municipal bonds, international (German, Japan) bonds to hedge the dollar, and US Bonds. Maybe some high-quality corporate debt, like Apple's debt, and maybe a real-estate project or two. All of which probably returns less than the stock market. But your $100 Million will still be there in the next crisis. That's not necessarily true for an S&P500 fund. ------------ Finally, the average volume of Vanguard Total Market ETF is only ~3-million (at a price of ~130 or so). Which means that Vanguard Total Market ETF only has ~$300 Million changed each day. If you pump $100 Million into an ETF with only $300 Million worth of daily average volume, what do you think will happen? You'll over-centralize the price and get a bad deal. Its not easy to move $100 Million, even into a major fund like Vanguard's Total Market ETF, without a manager. At $100 Million+ size portfolios, you need to start thinking of Dark Pools of Liquidity (ie: somewhat hiding the order book). So that when you execute the buy order, the wolves of Wall Street won't own you. $100 Million+ accounts don't work the same as a normal account. Pump that into the market in one day, and the price will rise dramatically. Sell that in one day, and the price will drop dramatically (losing a % of your value on both legs of the transaction). Having an expert guide you, so that you can minimize Bid/Ask issues, is essential.
    - wpietri 8y ago
      > To be fair, when you have $100 Million, the goal of the game is not "growth", but holding onto that money. What's your evidence for that? Sure, they don't want to lose, but nobody does. And if anybody likes to get richer, it is pretty clearly rich people. Even the charity-focused ones want to keep increasing their resources, as that lets them have more impact.
- paulie_a 8y ago
  It's always sad when I get my upwards of 10 percent by professionals. I personally get 500-1000 percent return year over year. I'm working with small amounts of money that if I lost entirely wouldn't be the end of the world. But some years they barely beat inflation.
  - robk 8y ago
    How??
    - wpietri 8y ago
      You think he'll tell you for free? Nah. To learn the amazing secret to claiming to make a lot of money, you have to send him a lot of money. There are rules.
      - Topgamer7 8y ago
        Or buy this ebook for $9.99. Thousands of dollars in value, only $9.99. Get in on this limited offer!
    - module0000 8y ago
      He'e eluding(likely) to the commodities market. You can make double your money on a mediocre trade. You can also lose 100% of your money on a similar mediocre trade.
      - dgacmu 8y ago
        Alluding. :)
      - paulie_a 8y ago
        Nope just straight stock with my Scottrade account. In my younger years 77 dollars of stock ended up paying for a pretty decent copay for a surgery.
  - mikkom 8y ago
    > I personally get 500-1000 percent return year over year. Numbers like this are always quite funny to me. What does year over year mean in this context? 5 years? 10? If you would start with $1000 then in 10 years you would be at approx. 976 million with only lower part of your profits (500%).
- wpietri 8y ago
  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/ http://longbets.org/362/
  - vec 8y ago
    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 that it can maintains or even gain value in the event that the rest of the market tanks. An asset class that could reasonably be expected to substantially outperform both a bull market and a bear market isn't a hedge against anything, it's just a strictly superior asset class and we're pretty good at arbitraging those out of existence in relatively short order. With that in mind, doesn't this basically devolve to a bet that at least a whole decade's worth of economic growth was going to be consumed entirely by a massive recession? That's not wholly unprecedented, admittedly, but it is a lot rarer than I'd be comfortable putting any money on at flat odds. What am I missing?
    - ianferrel 8y ago
      "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.
    - SatvikBeri 8y ago
      Yes, it was a sucker bet. The funds Protege picked were actually funds of funds that basically had a .6 correlation to the S&P 500. So Buffett was almost guaranteed to win if the markets went up over 10 years, and lose if they went down. And it's very rare for the market to be down over a 10-year period. Honestly I have no idea what Protege was thinking.
- mv4 8y ago
  I am beginning to wonder, seeing the increased rate of hedge fund liquidations this quarter.
- user5994461 8y ago
  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.
  - SatvikBeri 8y ago
    The strategies that tend to work are boring and low capacity, so they don't get much advertising, and people don't hear about them. There's a massive saliency bias in that the strategies people are most likely to hear about are ones with some excitement behind them – that gives people a massively distorted view of hedge funds.
deleted 8y ago
[deleted]
gammateam 8y ago
> "Huge gains in production from Texas, California, and Oklahoma quickly eliminated the regional shortages of 1920 and induced a downward trend in bitcoin prices over the next decade, with bitcoin prices falling 40% between 1920 and 1926. The decline in demand associated with advent of the Great Depression in 1929 magnified the price impact of phenomenal new discoveries such as the gigantic East Texas field which began production in 1930. By 1931, the price of bitcoin had dropped an additional 66% from its value in 1926." paraphrased from https://econweb.ucsd.edu/~jhamilto/oil_history.pdf https://econweb.ucsd.edu/~jhamilto/oil_history.pdf Passive retail traders were never in commodities trading. Retail trades stocks. Retail has been trading digital assets like penny stocks. GTFO of the digital commodities market if you don't swing trade supply and demand or actually use it.
- JohnJamesRambo 8y ago
  I keep rereading this comment, trying to understand what you are trying to say.
  - gammateam 8y ago
    Commodities are volatile and seasonal Bitcoin is a commodity steered by the same level of supply and demand pressures but held to a higher fictional standard by people that trade and evaluate it like a different asset class (equities)
    - tim333 8y ago
      It's not really a commodity like oil. I feel The Onion was closer in calling it "crazy imaginary internet money" https://www.theonion.com/bitcoin-plunge-reveals-possible-vulnerabilities-in-craz-1821134169 https://www.theonion.com/bitcoin-plunge-reveals-possible-vul...
      - gammateam 8y ago
        Why isnt it also a commodity like oil? it is the fuel for its blockchain. You cant use that public resource without it. It is built to plunge and surge just like oil prices do, based on supply and demand, which also comes in seasons just like oil. Most commodities have seasonal patterns. Bitcoin trades like those. It isnt controversial when a conmodity plunges and surges. Its actually better for different parts of the population at different times.
thesausageking 8y ago
> Given his pedigree... Novogratz is a fun character and a good fundraiser, but he doesn't have a pedigree as an investor. He became famous (and a billionaire) by taking Fortress public. Under his watch, it then went from $35 to down below $2. After he was demoted, he ran a macro fund there which performed awfully and, in 2015, it was shutdown and he was forced into "retirement".
- Alex3917 8y ago
  I was in his office chatting with him a year and a half ago, on the exact day of June or whenever the market hit its bottom, and he called that that day was the bottom. He does things that don't always make a lot of sense to me, but he wouldn't be a billionaire if he wasn't getting a lot of stuff right also. E.g. he also bought 500k worth of ETH and sold it for 250M. Paid his taxes, bought a new plane, and donated the rest to charity. His LPs might be nervous, but he's probably doing just fine.
  - thesausageking 8y ago
    Hard to verify what you're saying. June wasn't a bottom for ETH and the most he could've made with that trade was ~4x. But even if you're right and he did make a great trade, that doesn't make him a genius. He's a gambler and sometimes gets a great hand. He was super bullish on EOS before it tanked. He very publicly called a bottom[1] for BTC on Sept 13th when it was $6,300 and it's down by ~50% since. [1] https://twitter.com/novogratz/status/1040288811643809798 https://twitter.com/novogratz/status/1040288811643809798
    - Alex3917 8y ago
      Ahh I was thinking of July 16th, 1017. ETH went from over $400 in June down to $133 in July. https://coinmarketcap.com/currencies/ethereum/historical-data/?start=20130428&end=20181219 https://coinmarketcap.com/currencies/ethereum/historical-dat...

KasianFranks 8y ago

More proof from HN that cryto is bad.

hassan_shaikley 8y ago
It has its uses. It's just not free real estate.
- all2 8y ago
  > https://morningchores.com/free-land/ https://morningchores.com/free-land/ Even free real-estate has its drawbacks.

dkoston 8y ago

It amazes me that funds hold long positions in a market without safeguards and regulations and that really has yet to formalize. I'm bullish on digital currencies but there's going to be a ton of turmoil while the world figures out how to deal with this new asset class and major shake ups as regulations start to formalize or continue to formalize in some cases. Long plays in this market are massively risky bets. They seem completely unnecessary as well. With the volatility that exists and the decent level of volume, there's tons of easy money to be made.

tim333 8y ago
Normal investment funds don't pretty much. Hedge funds are less regulated and and can punt on pretty much anything.

ham_sandwich 8y ago

From what I read when the firm launched, I thought this operation would behave like a traditional market making desk, profiting from spreads and hedging aggressively. If anything volatility would help P&L, but I guess there just isn’t enough volume or liquid crypto derivatives to hedge effectively.

owenversteeg 8y ago

“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.

blake8086 8y ago
And dot-coms! And real estate! Hmm.
- bduerst 8y ago
  Ships can't ever sink when all you look at are the ones that are still floating.
  - carbocation 8y ago
    This is a beautiful description of immortal time bias.
- quickthrower2 8y ago
  Real estate is as old as humanity
  - dragontamer 8y ago
    No. Its only as old as modern society. The idea of a private citizen owning land was not generally accepted in the medieval age of kings. Only lords and other nobility could own land back then. Technically, the king owned the land, and the Lords were simply stewards of the King... probably indirectly (King -> Count -> Lords) Eventually, real estate could be owned by the common peasants and merchants, but that starts to get into modern capitalist style society. For some details, see this article: https://en.wikipedia.org/wiki/Quia_Emptores https://en.wikipedia.org/wiki/Quia_Emptores
    - JumpCrisscross 8y ago

lordnacho 8y ago

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 convincing. I've also heard that plenty of arb guys are doing fine. If he's speculating and not just running arbs, what is he doing? If he's just punting the cryptos that would seem more in line with what's happened, but it's not clear what he's up to from this. Also, with arbitrage it's limited how much capital you need. A lot of HFTs use very little. If you're getting money like a hedge fund you have to be sure it can be put to use. Ex HFT and fund manager.

GreaterFool 8y ago
I also hear arb is doing fine. I wonder how it works though. Most exchange APIs are terrible and it is simply not technically feasible to do anything using those APIs. Also prices at too many exchanges move in absolute lockstep. Must be private, privileged access to better (internal) APIs, profit sharing, rip the face of "retail" investor kind of deals. After all the "exchanges" are not really exchanges as we know them in other markets. They're more like forex trading. I think the crypto market would benefit from a (semi-)regulated impartial exchange where other firms can become members and act as brokers to direct retail flow. But unless there's some sort of regulation about it it would just be a private business that could kick out any member for any reason. To much risk for the members.
- polkapolka 8y ago
  You bypass the API completely and fill orders "manually".
  - bhaak 8y ago
    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.

kilo_bravo_3 8y ago

I like how cryptocurrencies were launched as an alternative to central banking, wresting control of money away from the government and big banks. An open and level playing field that would democratize how people transact financially with each other. And then the first thing the early adopters did was recreate the flawed financial institutions that surround "real" money so that they could pretend to be Gordon Gekko and throw around words like "arbitraaaaage". Is there data on what percentage of cryptocurrency transactions are "Real, actual, humans buying and selling real, actual, things or compensating each other for their ideas and thoughts" and what percentage consists of "traders shouting at each other in the echo chamber"?

Filligree 8y ago
All you have to do is look at the buy/sell curves. Crypto is 80% market manipulation, 19% traders and maybe 1% genuine use.
- JumpCrisscross 8y ago
  > All you have to do is look at the buy/sell curves What the hell are buy/sell curves?
  - orbifold 8y ago
    How the orders are distributed in the order book.
    - module0000 8y ago
      This is incorrect. Orders and their distribution in the order book is called liquidity. Alone, they have very little meaning, and are often manipulated in the securities and commodities market(ie: you see a 5,000 bid, and place your own 5,000 ask - suddenly the bid is gone, and your ask gets rolled by huge buy orders). "Buy/sell curve" has no meaning, the closest term would be "yield curve", such as US interest rates. As the rate climbs and falls, there are inverse effects on financial instruments.

Scoundreller 8y ago

I found this article pretty good about the whole IPO “experience”: https://equity.guru/2018/08/01/galaxy-digital-holdings-glxy-v-debuts-market-early-investors-willingly-hooped/ https://equity.guru/2018/08/01/galaxy-digital-holdings-glxy-...

pavlov 8y ago

Here’s a deep New Yorker profile of the man and his crypto ambitions from the more halcyon era of April 2018: https://www.google.co.uk/amp/s/www.newyorker.com/magazine/2018/04/16/a-sidelined-wall-street-legend-bets-on-bitcoin/amp https://www.google.co.uk/amp/s/www.newyorker.com/magazine/20...

kennxfl 8y ago

I actually thought given the size of the position, he was part of the group manipulating transactions in order to liquidate at the top. Holding those positions long term doesn't seem smart.

NicoJuicy 8y ago

You can't win in a losing market ( market capitalisation). I explained it to a friend of mine and he didn't want to hear it. Now we're one year further and he says it will go up again... Some people just don't understand :)

tim333 8y ago
You can short it on the way down, in principle.

apo 8y ago

This article was published November 28 of this year. From mid-November to now, cryptocurrency exchange rates have fallen by about 50% across the board, with some much higher. This move took many speculators, including Novogratz, by surprise: "I did think Bitcoin was going to hold at $6,200," said Novogratz. "It stayed there for four months. It felt like the selling was finished. But then Bitcoin Cash decided to fork again." https://www.forbes.com/sites/billybambrough/2018/12/12/bitcoin-bull-mike-novogratz-has-a-stark-warning-for-the-crypto-community/ https://www.forbes.com/sites/billybambrough/2018/12/12/bitco... I suspect many of these speculators are betting on a quick recovery. Should that not pan out, Novogratz and many others are headed for a world of pain. Meanwhile, Bitcoin the technology continues chugging on. The most noteworthy development is the rapid build-out of the Lightning Network scaling solution, but there's a bunch of stuff beyond that which gets almost no attention.

JumpCrisscross 8y ago
> Novogratz and many others are headed for a world of pain Management fees make for good medicine.
village-idiot 8y ago
Lightning is never going to happen. They have absolutely no idea how to scale that network or handle the routing problem. The entire system is just rife with potentials for monopolies and abuse. No consumer in their right mind would ever commit their money to it.
- apo 8y ago
  Lightning is never going to happen. It's happening right now: https://bitcoinmagazine.com/articles/progress-report-lightning-network-surpasses-1m-btc-capacity-4000-nodes/ https://bitcoinmagazine.com/articles/progress-report-lightni...
  - village-idiot 8y ago
    For something that’s supposed to compete with Visa, $1m isn’t exactly “happening”. Edit: supposedly there is $62 billion worth of BTC sloshing around out there. If you take that number at face value, then close to .0016% of BTC has been committed to the lightning network. This is not “happening” by any stretch of the imagination.

wgpete 8y ago

This guy showed up on bloomberg businessweek wearing a blazer and track pants. usually a recipe for losing that sum of money as a boomer....

alanmeaney 8y ago

Picking up pennies in front of a steamroller

granaldo 8y ago

With bitcoin down nearly 80% since all time high and the others down 90% (https://www.coingecko.com/en?view=all_time_high https://www.coingecko.com/en?view=all_time_high) Not surprise anyone who came in and trade may be catching knives. Plus all the uncertainties in market participants

imron 8y ago

Buy high, sell low

arisAlexis 8y ago

point? alternative investments are risky?