I went to school for math. I got trained in quant trading, and eventually shifted to quant trading in crypto. Over time, I've relied less on math and more on intuition, e.g. for analyzing Elon's tweets.
Yesterday I looked at ... cartoons? for 4 hours.
A thread about adapting.
I've talked before about how Alameda really only has one goal: make money trading. We trade crypto because we have edge doing so and believe it to be the best use of our resources, but if e.g. sports betting became big enough we'd probably focus 1/3 of our time on it or whatever.
"Crypto" is not monolithic, of course. Our edge has historically come from a few places -- having infrastructure in place to execute short-timescale arbs and spreads and having good intuition about market structure -> make good delta bets have been two of the bigger sources.
Look at these two images -- one is my comment on Slack at 4:05am (Asia time), and one is BTC's price graph at 4:06am. Am I the best trader in the world?
A thread about decisions and results.
Many disciplines revolve around decision making. Often, the decisions are pretty easy -- especially for someone who's experienced in the discipline. The difference between top performers and everyone else tends to be how they do on average at the few % of the hardest decisions.
A key feature of those decisions is that most people -- non-experts in their fields -- would sometimes get them wrong, or at least not have a great framework for evaluating them. And that can lead to over-reliance on results when evaluating the decision itself.
The crypto market has been very active this week -- and that makes sense, considering all that's been going on in the U.S. What's actually happening though -- and why?
A thread about efficient markets.
U.S. government has cared about crypto on and off, but last week felt like a bit of a boiling point. Gensler (SEC chair) started talking about it last week -- one of the topics he addressed was Bitcoin ETFs, and look at the GBTC premium -- hit from -6% to -12% or so on 8/3.
And BTC got hit by his comments, too. There were very plausibly other things going on, of course, but these comments -- in addition to the first the market heard of the infrastructure bill amendments -- drove the market down last week.
What Alameda is trying to do still astounds me, to some degree. A tiny team -- ten people, at some points, not even triple that now -- trying to build the world's best crypto quant trading firm, and OTC desk, and MM service, all 24/7. It sounds impossible.
Even more astounding is that we actually do it. Day in, day out, our models are still (almost) always fantastic, our quotes (almost) always live, our trades (almost???) always good. I've never seen a team as talented and dedicated as ours -- I'm not sure I've heard of one.
I was mostly expecting the team to be impressive in the typical ways -- everyone who pre-dated me and everyone we've hired since has been super smart, clearly talented, etc.
For a few weeks, BTC was boring -- it only moved like 10% over the course of (plural) days. I hope you all caught up on sleep, because crypto is now fun again! What exactly has been going on?
A thread about the calm and the storm.
On Sunday night, BTC bounded up quite fast -- it rallied steadily from $34k to $36k or so, and then shot RIGHT up to $40k all at once. What's the story there?
I think a few small effects combined here. First, there was some vague positive sentiment:
- Elon is in a "he loves us" phase
- Now maybe Amazon is in too? Maybe not but, like, maybe?
- China FUD in general, maybe they'll buy BTC instead?
How is it possible that it was correct for this plane to board 2 hours ago and then sit on the runway because of rain they already knew about
I’m like 60% sure the pilot is gonna have worked long enough that they force us to deplane and get a new pilot in another hour or two and I’m currently arranging a bloc to charter private if that happens AMA
People are replying with too many realistic explanations I’m worried my intent here wasn’t conveyed well
Word on the street is: this price graph is fucked up. What happened?
A thread about the calm, the storm, and how to tell the difference.
There have been a few prevailing narratives lately:
- China FUD driving prices down, U.S. maybe to follow?
- Bitcoin is bad for the environment, or at least Elon thinks so
- Maybe with this dip, some of the institutions who bought are under water and need to sell? (Saylor, etc.)
None of that is concrete, though, and people vacillate between over-stating the pieces of news they want to hear and under-stating the ones they don't. So let's break it down a little, and look at some stuff which *is* concrete.
The macro market DOES drive crypto, but only when it has to. In March 2020, crypto had no choice but to go down with (e.g.) SPY — the whole world was watching, and when the whole world watches people will buy BTC when it lags below SPY, and vice-versa.
Let's look at two investors, Adam and Beth. Both are 25 years old, both make $200k/year (lump sum) and expect to keep doing so for their careers (not realistic, but let's just use that for now). Adam invests it all in a 5%/year fund, Beth's fund is 50/50 to make +30% and -10%.
I'll be honest -- I was dreading this conference. I'm not great at meeting strangers, I dislike much of networking, I was vaguely concerned that crypto culture might be toxic in person, and I'm not wild about public speaking. Also, Miami is so hot.
How wrong I was! I enjoyed basically the entire trip -- it managed to be productive, invigorating, sentimental, and super fun all at once.
I was pretty sure the perfect timing + chance to speak meant this was the only conference I'd ever attend, but now I doubt it.
A thread about being wrong and not really making money but "generating personal value" or something.
On a plane to Miami, thinking about the topic of the panel i’m on: Is it possible to time the market? It’s a great question, and one my priors were REALLY wrong about.
A thread about being wrong and making money.
My initial training in quant trading came at SIG, trading more traditional assets than crypto (let’s hear it for fixed income ETFs). These are markets that have existed forever, and many large, skilled firms have traded them forever.
In these markets, it’s really hard for there to be large, fairly obvious, predictable moves — if those existed, these big quant firms would have figured them out too and arbed them out (or similar).
... but, it could also be used to be parked in a yield farm, or as collateral for someone trying to get super short, or whatever.
Also, consider a common trade -- USDT gets really rich, MMs (such as Alameda) create USDT to sell it >1. This increases stablecoin supply!
Why does USDT (or any stablecoin) get rich? Various reasons -- maybe people really need something USD-like and so bid it up (because they're not creating for whatever reason). But maybe the BTC/USDT market has significant activity.
Well. Crypto's crashed quite a bit in the past few days, leading up to a GIANT crash (BTC touched sub-$30k!) a few hours ago. It's ticked back up somewhat since, and started bouncing around a bit. What happened?
A thread about lemons and lemonade.
The narrative in the winter was clear: institutions were getting into crypto and that's why crypto rallied so much. This mostly happened in BTC, but the other coins mostly had a beta to BTC so they all rallied some, too.
More recently, the rumors turned to ETH. Now, institutions were getting into ETH, too! And some other coins, but at least for the past couple weeks, the ETH rally was The Big Thing happening (ignoring DOGE). Look at that ETH/BTC over-performance! BTC dominance was at a local min.
I throw the term "expected value" (EV for short) around a lot. What is it, and, more important, why is it the thing that matters?
A thread about the median and the mean.
Let's step back from trading and focus on an idealized situation which is sorta like trading. Say you've got $10 and all you're allowed to do with it is pay $10 to flip a coin which comes up heads 55% of the time, and you win $20 when it does. You can play as much as you want.
The *expected value* (EV) of each flip is
-$10 (cost of playing) + $.55 * 20 = $1
Meaning that each time you play, you're expected to make $1. Pretty good!
I often talk here about decisions I/Alameda made that went well. Sometimes people ask for examples of the opposite -- times when I made a mistake and lost a lot, or even times I lost a lot by doing the right thing. Both happen a lot!
A thread about melted wings.
Alameda uses "March 12" in a Voldemort-like way -- it invokes dread like not much else, and it comes up a lot in mean vs. median discussions ("sure this usually works but it loses $5m on March 12," etc.)
Before March 12, though, there was another Terrible Day: September 25.
September 25, 2019 was -- at the time -- the scariest day I'd ever had trading, and I think it was maybe Alameda's worst potential vs. realized PNL day ever (we *could* have made a TON -- we, uh, didn't).
2 years ago, Alameda maintained pretty strict delta neutrality most of the time, generally trying quite hard to make sure our PNL was from spreads and arbs. Today, not so much -- we got ... uh, really long in winter 2020, for instance. What changed?
A thread about super powers.
Let's back up a little: why does Alameda trade crypto? Why don't we do something else, like equities options trading? Or sports betting? Or competitive Scrabble?
(Incidentally, these are all things various team members have done or still do :P)
The basic answer: it's where the money is. We could make a bunch of sports betting models -- likely some of the world's best! -- but the money in crypto just makes it better. And sadly (for me), the money in competitive Scrabble is nothing to write home about.
Haven't done one of these in a while: what happened in the crypto markets today?
A thread about the past and the future.
For the past week or so, crypto has been on a tear. It's risen slowly but steadily from the mid-$50s to new highs over $65k, seemingly without a ton of fanfare. Amidst excitement over the COIN direct listing, parts of this seemed almost inevitable.
The COIN listing came and went. And it's hard to say that it was anything but a pretty big disappointment vs. the market's hopes (and, certainly, amidst the market's hype-driven rally).