There is a small group of hedge funds benefiting from the recent turmoil in the cryptocurrency markets.
Although many investors have suffered huge losses at the sudden descent of digital assets like Bitcoin and TerraUSD, a few computer-based funds have capitalized on them using algorithms.
Appia fund
One such investor is former Lehman Brothers and Morgan Stanley trader Jay Janer, whose Appia fund wagers on rising and falling crypto futures prices. When it bets the market is going down, it places short positions to take advantage of the rapid decline.
Last month, it managed to profit some $40 billion from the collapse of Luna, when it crashed from more than $80 to close to zero over the course of just a few days. “We’ve made good money from Luna,” Janer said. “The model followed what was happening in the market. It started crashing and the model got in.” He believes the fund managed to capture around two-thirds of the fall in Luna’s price.
While other hedge funds have lost 2.9% on average this year, according to data from HFR, Appia is up around 20% this year. This can be attributed to short bets it has been making against other coins, such as Bitcoin, as well. “It’s wonderful to have a market that moves so much,” he added. “I don’t know of any other market that moves so much.”
Crypto sharks
Others have also been trying to turn a profit from working against other investors. For instance, some traders have been seeking over-leveraged positions on blockchains and decentralized finance protocols. They then attack those positions, trying to force them into liquidation, thereby earning liquidation bonuses common in DeFi.
However, the liquidator doesn’t see this action as an “attack,” instead of arguing that liquidations are necessary for the lending market. “Even though no one enjoys being liquidated, it’s essential that people do get liquidated in order to make the market and protect the protocol from insolvency,” one such trader said.
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