221: Matthew Dibb – Crypto Fund Takes Flight on Thematic Trading

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Hey crew, welcome back to Chatwith Traders Podcast. Like always, I appreciate your company. Now as a few of you have reminded me, it has been quite some time since I've sat down to speak with a crypto trader. I know it is long overdue. But that changes right now. My guest on this episode is Matthew Dibb. Matt is the founder and chief investment officer of Astronaut Capital, a cryptocurrency and digital asset fund attracting its first investors in 2017.

And prior to being consumed by crypto, Matt was a traditional finance guy, having held down roles as a futures and FX trader for banks and institutions going back to the mid 2000s. while also doing a stint in VC too. We had a great chat and it started with a couple tales from when ICOs were all the rage in 2016 and 17. and the greatest differentiators between traditional markets and crypto markets and what it means for active traders. Then we branch into all sorts of things.

Crypto hedge funds, generating alpha, trend trading, thematic asset allocation, analyzing capital flows, trading pairs and options strategies. crypto specific risk management and more. Then last thing, our chat ends with Matt sharing a few words for crypto newcomers. In case you're wondering, this episode was recorded twenty-fifth of August 2021. Now, coming to you from Singapore, here is my guest, Matthew Dibb. And I notice uh Bitcoin's back to fifty grand. How do you feel about that?

Feeling feeling good. I'm bullish. I've we've been bullish for the whole month and part of last month. It's not it's a rally that's been like spot led, so there's no like there's not a lot of derivatives or leverage involved, which is like should be seen as a good thing. But We're struggling here a little bit. There's a lot of focus on all the altcoins.

So i it's sort of like hard to grade whether this is a if this is going to continue at the same speed or if we're just going to chop around here right now. But for all intents, like we're long. So What do you mean by it's been a spot led rally? So like from the derivatives data that we're seeing, both in options and in like swaps or futures, there's not a lot of retail that are out there punting leverage on this right now.

So it means that the majority of participants are coming in and buying actual bitcoins, like physical bitcoins. Which which you could say is then not really retail driven. It's more either like basically old school whale holder driven or it's institutional driven. Which is like a good thing, but it's also a reason why we haven't seen any like blow off top from fifty. Like why it's not just like smashing through it.

So how come you're wary about this rally if you know, that's typically a good thing? I'm not necessarily it's just that retail hasn't come in yet to anywhere near the same level as what it previously has. And usually like retail would be in now, it's just a little The I think retail is a little bit distracted right now with all of the other altcoins and NFTs in particular.

that's like flying around selling, you know, JPEGs for millions of dollars. So it it's Bitcoin sort of i it's sitting in the background of the whole scheme of things in the crypto ecosystem right now. But that it won't it won't stay like that for long.

Yeah. Well anyway Matt, take me back a few years, I think it was maybe 2016, why does someone from traditional markets, uh Forex and Commodities, if I'm not mistaken, want to jump across to crypto markets? I mean it's it's a good question. At the time it was it was a little bit of a surprise for me. So In 2016, I was working in um actually in Venture Capital for a brief stint for like almost two years.

And prior to that it was all commodities and FX, but I did this short stint to sort of get exposure to the tech sector. Interestingly enough, there was this there was this deal that someone pitched us. Um, it was for this like early stage startup and they were doing like some identity verification type of like um technology and they wanted to raise like 500k.

Anyway, for like for one reason or another we ended up passing on the deal and we're like, okay, we're not gonna do this. And um I must have been added to their email list or something because like s I kept getting like email updates from these guys. And like six months later I get this email saying that they raised twenty million dollars.

And I'm like, how the hell did these guys raise$20 million? Like they went to every VC that we know and nobody funded them. So like what happened all of a sudden? And we found out that they ended up doing an ICO and I'm like, what is an ICO? Like how like, you know, how how does this much capital come flooding into a company that basically had nothing?

And so I started looking into what an ICO was back then. Yeah, I saw that like the the way that this this fundraising spurred basically out of nothing.

into creating these these crypto coins. And for me, it was sort of eye opening. Um and that's when I sort of I took a stab into this market. I said, well Let's start looking at like what's actually happening within this ecosystem because obviously if there's a lot of demand in terms of like um funding new projects and stuff, then it's something we need to keep an eye on.

So I went on the first part of it, I guess, is where I went on to uh actually start a research firm within cryptocurrency and and and blockchain. And um that was sort of centered around like looking at these new projects. That were raising funds for ICOs and trying to grade them to like the best extent possible. Um, and that I guess is sort of where we we started within the the crypto ecosystem, was more so from like a research

an analytical point of view. But yeah, to answer your question it was it was this like realization that all of a sudden this new method of of funding, um, raising capital, and also just like deployment of projects into a vibrant ecosystem all of a sudden came about. So when you started uh researching this more You know, in those early days, were you like a believer in

crypto as a technology, like with hopes that it was something that would really catch on and you could see a future for it, it would become legitimized, et cetera? Um, or did you more We're more looking at crypto as l like purely from an opportunistic standpoint. Yeah, I truth be told, I I wasn't sure at that point because back in in the trading days way before then, I when I was trading more traditional markets.

I I was buying some Bitcoin like here and there. Um and at the at the time the guys on the desk are like, what the hell are you doing? like focus on BHP earnings that are coming out or something like that. And and you know, I it was something that I couldn't really spend any time on and and immerse myself into. From there, like once I picked it up again, I sort of saw what people were, I guess, trying to do.

And of course, I mean, there was this part of me where I'm like, well, from an opportunistic and and a and a commercial point of view, this is obviously where the money is. Um, whether it be from trading or investment or whether it's bolt on services like research or whatever it might be, um, there's obviously a lot of benefit in there for me, but

uh the way in which people I guess are trying to innovate on this thing called blockchain is actually pretty interesting. Um and I guess that led us to take a little bit more of an objective approach to the market. and start like having start needing to like categorize things differently because I mean you gotta remember like twenty sixteen and twenty seventeen, there was a lot of shit hitting the markets like Scams, just full blown scams.

And um trying to filter through them as an investor or an analyst was just difficult. Um and you know, we, you know, through our times like we would go through at one point maybe 30 or 40 projects per week looking at these things and trying to tear them apart. And eighty to ninety percent of them were just trash. And I guess when you go through that cycle for long enough, you start losing a bit of hope.

um in in sort of some of these projects that that were coming in and a lot of the other opportunistic sort of players that will come in because when you've got a fundraising environment like that, of course you're going to have guys come in try to make as much money as they can and just leave. And we would see that day to day. So

That was always something of course that would come across, but at the same time, there were always these these sort of pockets of innovation that every now and then would say, Oh wow, uh like this is this is pretty cool. And I guess Over the years, that has more and more come to light, I'd say, since probably 2020 or late 2019, where we've actually seen real application.

of um of like some of these these protocols and these these these applications, DeFi applications in particular, that may actually, you know, change change the world and the way that people actually deal with money and finance.

As you pointed out, there were a lot of scams floating around twenty sixteen, twenty seventeen. Uh obviously there's still many of those today. Do you think it's kind of at the same level? I'll I'll tell you a story, like it's it's a bit of a funny one actually. There was this in in early twenty eighteen, this was sort of like the peak of it when I really remembered like how bad things got. I was in New York for and I don't go to New York often, but there was like a conference on

And um one of my friends invited me to this party, which was at like some rooftop bar. So I was like, Okay, let's go. It was some crypto sort of party. I'm not sure what it was for, but I was like, let's do it. So we get there and these guys have booked out of this like huge hotel, like four full floors. Like this this party was huge. And we go up the elevators, we get out on the rooftop and there's like it's just full of these like Russian models.

We've got like Dom Perignon and like uh uh what what do you call it? Fire flamethrower guys and and all this sort of stuff. Like it was just nuts. Like it was like a circus. All these people there, and I'm like, what is this? What is this thing? Like who owns this party? I wanna meet the guy.

And he's like, Oh, it's some like blockchain ICO or something. I'm like, Okay, let's like go chat to a few of the guys that are part of the team. Anyway, I go up to these guys, I'm like, so what's this project that that you guys raise money for? And he's like, oh, it's like a it's a blockchain protocol for drones. And I'm like, what, for drones, like the things that fly? And he's like, Yeah, for drones.

I'm like, okay, I'm not sure how that would work, but how much do did you guys raise? And he's like,$350 million. I'm like,$350 million. It was like that moment from I'm not sure if you've seen the big short. Where they're like they go and see all like the houses and they're all empty and they're like, Okay, sell everything, like short it all, you know? It was that moment that I had and I was like, Wow.

I can't believe this is happening. Three hundred and fifty million dollars for a project that nobody has ever heard of, which is like a useless protocol and obviously the company isn't around. now. But that was sort of that moment where I was like, okay, there is something sort of wrong with the way this industry is going. Now to go back to your question, have we seen like to that extent like happen again in like the last year or two? I wouldn't say so. There's been like very opportunistic

types of uh, I guess, projects that are started up, like these different dog coins. Um, there's scams and stuff that might be a few million dollars, etc. But to the same extent from what we were seeing during like the ICO period, because Back then, I guess it was more like traditional guys also coming in that would come up with blockchain for XYZ. And no one, you know, back then they didn't even know what blockchain was, most of these guys raising money.

We aren't seeing that now. I would say we're seeing it a little bit more differently and people aren't necessarily raising capital at like in the same fashion that it was back then either. So I would say that in the market. overall has gotten a lot healthier for sure. If anyone wants to look up this uh drone token project, uh do you recall what that was called?

Dude, I've got no idea. I was just yeah. I'll I'll I I'll I will try to find out and I'll let you know though. You can put it on the list later. Okay, okay. That would be interesting.

As someone who came from a background in traditional markets and you, you know, jumped across two crypto, what things hit you initially as some of the differences or similarities between the two markets? I think the biggest and I'm gonna I'm going to talk a little bit more from a trading point of view here, because nowadays, I mean to to add nowadays our focus is more so in in liquid trading rather than um venture capital investment. And I think

You know, to that point after the story that I just told you, we realized that, which was back early Q one twenty eighteen, we sort of realize that we need to have a lot more active approach. And so that's when

I guess we got back on the tools and started trading rather than than than investing into like more a liquid asset. So I would say the differences between Tradfi as as they call it and and you know, more of the crypto ecosystem from from a trading point of view would be subtleties uh in some respects, but um one thing that surprised me the most was the way in which the flows trade of of capital. So let's say if you're trading um traditional markets, it might be like FX or whatever. You could

every day you would see like massive volume come in, let's say in during the US session, that's what you would expect. Or a certain part of the day where like Europe would open. And so all of a sudden you'd start seeing like bid in like the euro or whatever it might be. In crypto, what we've found is that like those like flows of of capital and volume and and

um, you know, allocation into the markets end up changing time zones like a lot. So for a while it might be China or or like Asia Pacific time zone that is um completely moving the market on a day-to-day basis. And then it ends up being the US. And then it ends up being Europe. And these change um periodically, which is weird because it it's it's something for us that we would like in traditional markets you come to us expect that a certain geography would have all of the push.

um for a uh particular market. But for crypto it seems to be really weird because it changes um all the time and without notice. The other thing is that really shocked me, and you get this when um when you get very large sort of, you know, drawdowns, as we know in cryptocurrencies There can be times where we see like a 30% drop overnight. Having no circuit breakers or like no pausing of the market really sucks.

So, you know, you you go through like a thirty-five percent drawdown in in, you know, the matter of hours. There's no one turning off the exchange. It just keeps going down. And and when that happens in crypto, obviously when leverage is so built up um and large positions get liquidated, it's just this waterfall effect.

that keeps hitting every other position and every other exchange. And then one exchange gets hit and all of their positions are liquidated. And then that has, I guess, um some cross effect to other exchanges. So that I guess is is one aspect where you're sort of waiting for it to to stop. uh at times and it just doesn't and you see this just hemorrhaging of the market acr across every single asset class. I guess the other thing is realizing that black swan events, those like

30%, 40% sort of drawdowns happen a lot more than you think within crypto. Um and they can happen like instantly, like even for a couple of minutes across major assets. Um or they can happen across the whole market. I had a situation for myself actually trading PA. uh personal account in 2019, which was like quite a boring time to trade for most of it. I mean 2018, 2019 were like there wasn't a lot happening.

But um I had built up this position in Ethereum for some time. And um it was doing real really well. Like it was a leveraged position on on Bitmax. I'm not sure if you ever use it, but it's like the It's the exchange everyone goes to for a lot of leverage, right? So we were trading on this and the unrealized profit of it was great, thought there was definitely nothing to worry about. liquidation level for this account was like miles away, like sixty percent of the market away.

Anyway, this one morning there was essentially a flash crash. And when a flash crash happens in crypto, like it can just go down, you know, thirty, forty, fifty percent in no time. This happened over a period of thirty seconds. I was actually in front of the computer watching it at that time. And before I knew it, basically the whole account was liquidated, just gone. And the worst part of it, which would be totally fine if the market kept going down.

But the market went straight back up to where it was like two seconds later. So these sorts of things, these like these uh black swan events, let's call them, or these like meltdowns by specific assets. happen quite a bit. And that's not to like scare anybody away from because there's obviously things that you can do to hedge against that or just having a stop loss in or whatever it might be.

But it's these irregularities that really can hurt a trader without them you know, w without taking into consideration the risks that can pop up at any time.

What led to this uh flash crash occurring? Do you know? So back in 2018 and 19, there wasn't as much volume on the exchanges. So what happened is BitMEX, which is purely trading derivatives, okay? So it's like futures. They're not trading spots. BitMEX used to take its mark price from another exchange. Now, that other exchange is called Bitstamp.

Okay, so Bitstamp was a spot exchange. BitMEX used to take the pricing from that. Someone figured out that if they go and and sell, let's say, like$50 million worth. Of Ethereum on Bitstamp and simultaneously take out a short position on Bitmex. They get to short it all the way down and then buy it basically all the way back up.

It was common, it sort of happened a couple of times where people were utilizing that that mark price to be able to take advantage of one exchange to then lever up on derivatives on another. Yeah, I don't trade Ethereum, but I I I Now that you talk about that, I vaguely remember hearing about it. I mean, how far did the price go in Ethereum? It was about thirty-eight percent or so in a couple of minutes, in about in a minute or so. That's crazy. Yeah.

So what did you do after that? I mean, I guess you're just sitting there with a liquidated account. Just I just yeah. I mean it was just one of my accounts, but you know when you you put everything into like this one trade that goes on for like, you know, a couple of months and it was a big trade and then to see like, you know, your hopes hopes and dreams just like scattered in front of the computer in like a minute or two. Yeah, it sucked. It really sucked.

So this flash crash only occurred uh on those two exchanges. It wasn't like a market wide thing. No, it's just those two exchanges. Man, okay. Wow. So yeah. This sort of stuff happens in in crypto. It's a now it's it's a matter of managing risk. And like we all learn from that, um, you know, having stop losses on is key. You don't go to bed thinking that any position is safe.

um or have a hedge on or, you know, have puts on, whatever it might be, you sort of have to take those precautions because like nothing is safe. Yeah, yeah. Yeah. Have you ever watched a stock explode and thought, if only I had the capital, or sat on the sidelines because your account balance felt too small to matter? Good news.

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Let's speak about Astronaut Capital. So this is the a crypto fund which you started uh I think it launched 2017, is that right? Yeah, that's right. Okay. I I don't think I've actually spoken to anyone who runs a crypto fund. Everyone I've spoken to is more of a proprietary crypto trader. I'm just curious about like what's the Who invests in a crypto fund? Like what's the typical profile of the investor that you attract? Honestly at the moment it would be more high net worth and family office.

So people that are wanting exposure uh to crypto but without the same degree of drawdowns, essentially. They would be the biggest market for it right now. And uh yeah, I mean like a a lot of people say institutions. Institutions usually come in and just buy, you know, Bitcoin or or a spot. But for a hedge fund, it's those that are wanting a unique strategy that

are not wanting to m manage it themselves on a day-to-day basis because essentially they don't know what to buy and when to sell. Um so that's what we do. They leave that up to you. How come you went down this uh route of funds management instead of just continuing to trade a personal account? After we came up with the research company uh for um for crypto, which was in like late twenty sixteen, early twenty seventeen.

We had a bunch of people that offered to give us money. And, you know, at first we were like, No. You know, we're just sort of like trading our own cash. In fact, we're writing all of the research for ourselves, but we put it out there anyway. Um, but it sort of came to a point where the demand was pretty strong. So we thought, why not? Um and w so we went down that path and and we we opened our first fund which was more so

for um which was more so like longer term investments like ICOs and stuff like that. But it was our second fund that we started in twenty eighteen. that um started attracting a lot more capital, which was more so uh once again for trading. It was a hedge fund that would trade purely just in in liquid tokens. Um why did we do that? I I guess for us, I mean, having a fund um and training on on behalf of other investors, it's got both its like good side and its bad side.

Obviously, you're always having to um you're having to give rationale to investors as to why you make the decisions that you do. I think the most difficult part about that, actually, particularly in crypto versus more so than any other um asset class is for example when you're you're shorting the whole market or your net short.

And investors in in a hedge fund for crypto, they don't necessarily expect you to go net short on the market because they've invested because it's a new asset class and they're inherently bullish. So why are you going short? And if the market goes against you and the market's going up and you you come out the next month with like negative NAV,

Um, you look really stupid. But um, you know, and so and so that's something that you sort of like have to get past. It's it's not very easy um in in crypto to be able to to do that. And to be honest, we don't do it very often. I I guess that's one of the the toughest things. Probably one of the best things is sort of the investors that we bring on board are are great guys. Um and

There are people that really still do want to understand the ecosystem. Um, anybody coming into crypto, even at this stage, like I consider anyone coming into crypto professionally or from an investment point of view that's writing a decent size ticket to be relatively early and quite smart. And so, you know, we've always had a good network of those sorts of people. And, you know, it's good to have them as as investors.

Did I hear you correctly in saying that uh investors who are coming in now are still early into the crypto market? Yeah, if they're coming in with larger tickets, I'm not talking about retail here, but if you're a family office or you're a high net worth person that's allocating a few percentage of your wealth into the market, that's more than most. It's more than most. I understand completely that retail is out there and everyone owns like, you know, a bit of Bitcoin or Dogecoin or whatever.

But if we're talking about people actually putting serious money down on behalf of their family office, on behalf of their investment firm and saying, Hey, we need to be in this market for three percent or whatever it might be. That's smart and there's a lot of them that aren't doing that. I still consider that quite early. Yeah, okay. Okay. Interesting.

I think last time we spoke or when we caught up a couple of weeks ago, uh, you made a comment about how there were quite a few crypto funds which have um shut down as of late. Um, is that right?

I think we saw in in 2019 and early 2020, we did see quite a few, particularly around March last year as well. There were there was a couple of larger ones that also I think were on the wrong side of the market or um I think actually a greater cause would be the amount of leverage that they were employing. Okay, so that's been the in in most cases what's led to their demise is the uh being over leveraged.

Yeah. Yeah. Which is which has been pretty common in in crypto because as I said, I mean you don't expect these huge falls like March all the time, but when they do happen and even if you're levered up And in crypto, I know this sound like this does this sounds like a lot in traditional markets, but in crypto it's not for some. Um some funds lever up, you know, thirty, forty percent or something like that. So let's say like three or four times even.

And, you know, if you see a drawdown in the market of fifty, sixty percent, you're out. And yeah, we know of we know of a few funds that that happened to early last year. Are you able to speak to the growth you've experienced over the past uh five years or so? In terms of uh AUM? Yeah, and maybe returns, I don't know if um you're like able to disclose that.

Yeah, look, I mean we've seen our AUM, um I'll talk to our our trading fund. Our AUM started quite small when we launched this second fund in twenty eighteen. Um throughout twenty nineteen it was also quite low to until the end. I guess before this sort of market started going up, which let's call that in um mid uh two thousand and twenty, um we were able to collect about you know, uh five times the AEW that we previously had. Um since then

Um, obviously with performance and new subscriptions, that's gone, you know, another fivefold. But I guess talking about returns, since w since we started this fund, it's roughly up about Uh now, probably about seventeen hundred percent. Okay, that sounds pretty crazy. Since early twenty eighteen, yeah. And I mean you I I guess for this sort of thing you also have to look on it at it on a comparison to Bitcoin. Yeah, so i if if you're a if you're a fund

Um, the question is have you outperformed Bitcoin if somebody just bought BTC and held it? In our case we have, which is great. I think a lot of funds need to also do that as well as like benchmark themselves. you know, to actually find out whether they're outperforming the broader market or not.

Well that is one of the things I actually did want to ask you about because Being a crypto investor or a crypto trader, you're dealing with an asset class that goes on these absolutely monster runs. I'm not quite sure the right way to word this question, but I I sort of wanna ask you like how do you how much of your poor performance is due to alpha and how much of it's just due to being in an asset class which, as I just said, goes on these huge runs?

So okay, this I I think this comes back to our strategy. Okay, so number one, I mean, we're a hedge fund, so When the market does go through a lull period, like it did in twenty eighteen and nineteen, uh, you know, we cut positions much earlier. Um so obviously we don't we don't lose as much of that that capital going down.

Uh for us it's more of how do we make that capital going up. And that comes down to exactly like where we deploy our assets to. And most of the time, in fact, for us at least, it's not Bitcoin. So I mean, I guess a like a a quick brief as to like how our strategy actually works. We focus on number one, we're we're trend traders, which is pretty easy. There's a lot of people do that.

But to bolt onto that, we focus on basically thematic asset allocation. So that means that uh crypto in its entirety is like A meme generally. That's how we think about it, right? It is a meme. And within crypto, there are all these different verticals that essentially people will run to every now and then and they will experience. Huge pumps, like a lot of alpha in comparison to Bitcoin and and the broader market. So that might when I talk about these verticals, it could be like.

DeFi, or it could be L1s, it could be D apps, uh NFTs, like there's a whole list of them. So it's our job to basically identify early on which one of these verticals is about to take off and what's going to outperform Bitcoin in the broader market on like a momentum basis. Um that is essentially our strategy as to how we achieve uh I guess alpha um in comparison to the benchmark.

Can we go into this, as you described it, thematic uh allocation or rotation uh a little more? Like, you know, if someone's listening to this and they think maybe that's something I want to bolt on to uh my way of trading. I mean, how would they start to do something like that? Sure. Okay, so there's a couple of things. I would say the first thing is identifying like out of the top 200 coins that exist.

You know, put it classifying them as to what they are. Uh like are they L ones or are they uh are they currencies or are they DeFi, whatever. Put them into different baskets. I guess the most granular you can get, the better. Okay. Then what you do is particularly on if you if you encounter a day in the market where things are quite neutral or even down. Have a look at what is showing strength. Like

um really apparent strength. It might be a few percentage points, whatever it is, but keep an eye on that. And if those days continue to happen, then that should flag something for you. It should say, well wait a minute, this particular asset here and let's just say for example it is um something in in DeFi this particular asset is showing strength and everything else is like neutral or flat and it's been showing this for like three days. What's up?

So then have a look at that. Um what we then do is that we then do an analysis on social sentiment for that particular uh asset. So we'll go have a look. basically see what the engagement has been like from the community or crypto Twitter or Reddit on this particular coin and understand why it's getting that strength. From there, I guess we then look to apply, I guess, uh on-chain analytics. So have a look at.

who have been the buyers of this particular coin, how much money has actually been flowing into it and out of it for like the last week or so. So that will give you an idea of like the capital that's moving around and flowing through it. I guess those three things are the are like the the larger part of it. And then the final confirmation for us.

is if we then see it break out on a technical basis, like momentum, proper momentum divergence from the rest of the market. And if that happens, it gives us a reason to at least allocate Into that particular asset. And if we allocate into that particular asset, the next step for us is to allocate more. So what else have we put in that basket that is comparable to that particular asset? Because they're the next things we need to be looking for.

So for us For example, we did this very recently with um we've seen like a huge rally in in um what they call L One for cryptocurrency, like layer one protocols. And so we identified one a few weeks ago called Luna. And that's exactly what we did. And then that led us to go into Solana, which is another one. So that's the type of process that we look to employ in like thematic rotation. Essentially.

Okay. Couple of things. Can I just pick up on your point about on chain analytics there? Uh you said you want to look at like what sort of capital is flowing in and out of uh these coins or tokens. How do you interpret that? Like what are the sort of things you're looking for there when you're looking at the data?

There's a there's a great platform for crypto traders called Nansen N-A-N-S-E-N. And Having a look at that, you'll be able to like basically search a token and you'll be able to see who the top holders are. Um, if they hold them in like their respective wallets that are tagged. You'll also be able to see like the recent large transactions of those. So it will show you essentially like whether let's say the top ten holders of it have added queens recently. Which shows that they're accumulating.

You can also look at, for example, exchange balances. You can look at team um team balances and tokens. You can see whether the team is like pumping the market for some reason. So that sort of like program for on-chain analytics allows you to just purely see where this capital is flowing and who it's more importantly, I think, who it's actually flowing to. Because, you know, if you find out that

another large fund is accumulating a particular coin and it's not really public information, then, you know, that essentially is is alpha. You know, th there's a good chance that they're accumulating that for some reason. So it's almost like, you know, if we just really simplify this, there's a massive fundamental Or kind of a sentiment analysis that you do. Uh, and then there's the technical aspect when it comes down to timing uh the trades. Would that be fair to say? Yeah, exactly.

So can you go into the technical side of it a little more? Like um, you know, do you have an example of the extent of technical analysis that you use? Yeah, I mean, as I said before, we are we're more sort of trend traders. Okay. So, um, but if I had to put it down to, you know, a type, I I think where we sort of hold a mixture of like a

uh like a turtle traders slash Peter Brandt slash uh livermore type of thing. It's it's it's pretty simple stuff. We're looking for consolidations over a period of time. And we're looking for a breakout out of ranges. That's what gives us confirmation. We look to buy high and sell higher, or the reverse. For and and look, a lot of people will trade in different ways. That's what we're sort of comfortable with. Um and to that point, by the way.

I think technical analysis works in crypto way better than any other market, like way better than FX or anything. And I've done it on all and many people have also said the same. Um so we we utilize those simple methods because we also know that a lot of people are following the same thing, uh, which which you know basically becomes self fulfilling in many instances.

So a technical confirmation for us would be a breakout of a consolidation, particularly if it's a leading breakout that has occurred with strength that hasn't been seen by uh other like asset. at all. So if we're seeing like much stronger momentum in a breakout of a channel through this particular asset that we've got our eye on, then it gives us even more confirmation.

Are there any other strategies you trade which aren't outright directional? such things as maybe yield farming or are you involved in anything like that? Yeah, so there's two other ones that we do. Um the first one, I guess, is it is still semi-directional, but we do a lot of pairs trading. So I guess taken from my the FX playbook. Um if we are let's say right now we're in a period of the market where we're like a little bit unsure as to like the stability. There's been a crash recently.

The question is, are we going to see a big shock in the system soon? So what we might do is would say, Okay, we really like this particular trade here. We think it's going up for whatever reason, whether it's thematic or whether it's something else, we like it directionally. Now we're going to pair it. We need to pair it with another trade that we believe, should we see weakness in the market, is absolutely going to get hammered for whatever reason. So

Paris trading for us is basically finding something that's going to essentially continue to diverge. Look for something that is going to outperform substantially. But if we do see a shock in the market, things get like shaky. Essentially the downside for us from our long position is hedge somewhat.

due to having a corresponding short in something that is waiting to hopefully just get killed and go down even further. So pairs trading for us is something that we do pretty often. Obviously you have to you have to match up these pairs Um, and if you don't then it goes the other way then then you're quite screwed. But you have to have the high degree of confidence in that type of trade. And the other thing that we do

is more so in neutral markets, which is uh just covered call riding. So we do do quite a bit of um uh options trades, uh some of it directional um as spreads. and some of it um just purely just selling volatility to to get yield. Uh in cryptocurrency, I mean just by if you write covered calls on Bitcoin, and you do it, you know, on a weekly or fortnightly basis, you can basically make anywhere between two and up to four percent per month on your Bitcoin.

Which is pretty big. So that's something that we like to do when particularly when IV is pretty high. Okay. Again, couple things I'd like to go into there. Um the way you described those pairs trade, it almost sounded as though it was more of like a risk management type of Uh that was kind of your motivations for putting on a pairs trade is more so than like uh an arbitrage or or seeing a a divergence between two as uh two uh coins or tokens which would often be correlated. Is that fair to say?

Yeah, it can be both instances to be honest. So, um, if we okay, we can look at it like for example, sector specific. So right now, let's say we have a quite a bullish view on FTX. They're a great exchange in crypto. So taking a long in FTX but a short in B and B, which is Binance. um is something in which we would be expecting more divergence. Okay? Because we're expecting outperformance of one and neutral to maybe slightly bullish in B and B, the other.

That is more on, I guess, that divergent side. As a form of risk management, then on the other side for some trades would quite simply be yes. buy something that we believe is going to outperform and sell something that is unrelated, even if it has diverged already, but we know is going to get killed.

So we we do it both ways depending on the situation. And to be honest, it we we don't know Realistically, in in the long run, um, I think we've done this quite a lot over the course of the last two years. And for us it's been mixed as to what we would make more money on um out of those sort of like two ways of doing it.

And are these pairs trades are like very um Like are they kind of quantified trades which you've modeled or are they more trades which you uh put on based on your intuition and instinct? I I would say number one, um, it's there's a fundamental reason, although we don't consider ourselves fundamental traders. That's why number two, we back it up with basically technical as well. So we look at the momentum of them, we chart them as pairs or as spreads as you like.

You know, from that we can see that a divergence in plain sight and look for continuation of that trend or of that divergence within the charts from a technical basis. The other thing you said which was quite interesting there

Writing covered calls on Bitcoin, I'm pretty sure you said, uh, can make two to four percent a month. Obviously, people are gonna uh anyone listening is gonna want me to ask you a bit more about that. Like how would you actually do that? The best way to do it is uh firstly, I I think there's one options platform at the moment that is um getting most of the volume for options. That's called Derabit.

Derabit, just so you know, and as a disclaimer, it's it's unregulated options. Okay. So it's like most of the derivatives that people are trading. They're not by the CME. Um, you know, they're not regulated. Um, so just keep that in mind. But it's where most of the volume is currently as of today.

So a common strategy that people would like to do is they would buy Bitcoin, they would put it into the uh let's say one Bitcoin, you would put it into your Deribit account, and then you would sell a call option. So that call option could be like what would say twenty percent out of the money. So let's just say for instance Bitcoin is now trading at fifty thousand, it's close to.

Selling a call option at twenty percent out of the money would essentially mean that you're selling a call at let's say, let's say sixty thousand dollars. Okay. That's expiring in two weeks. Now that might be a little bit further off. We would generally do less, but let's just say that for example. So selling that call option at 60,000 means that if Bitcoin goes up,

past sixty thousand, like you you collect a premium up front. And that might be like a couple of hundred dollars or like a few thousand dollars, whatever it might be. Um, and different strikes will have that different premium. So you get that premium no matter what. If Bitcoin goes up and it doesn't hit sixty thousand dollars or it doesn't even go anywhere near it, then you've collected that premium and you get to keep it and the person who bought the call option obviously doesn't earn anything.

So they sort of lose out. Now, if for example it settles by expiry above that$60,000, then essentially your upside on that covered call is limited. Um so basically you so sorry, I should say your profit is limited. You earn all of the capital gain to sixty thousand dollars, but anything beyond that sixty K

you've lost because you've sold a call over it. So realistically it Selling covered calls is not a it's more of a neutral, maybe slightly bullish strategy if you're writing them very far out, but it's more so neutral to bearish, if you like. It's generally a way for people that will hold their Bitcoin no matter what, but want to um want to receive some income off it, um, you know, on on a constant basis.

So it's a it's a good strategy. I would say it's not a great strategy, and that's why we don't employ it for like bull markets. If things are just like, really momentum driven. We're seeing the market just like break out bar after bar.

There's no point in limiting your gains. You know, if I was writing five like calls when Bitcoin was at five thousand or ten thousand, I'd want to shoot myself. But you know, it's those instances where all of a sudden your exercise and the market just goes up and up and you you've made say a thousand dollars or two thousand dollars on each bitcoin um from your premium that you've sold, but you've missed out on twenty thousand dollars of capital gain.

Uh, so that is obviously the risk, and that's why it's a strategy that we look to employ when the market really isn't doing a lot. Um, and it's just sort of neutral or flat.

Yeah, that's great. I appreciate you explaining that. I'd like to pick up a little bit on the risk management side of it. I know we've spoken a little bit about it, but let's go into it a little further. One of the things you said um earlier, which was quite interesting, is that, you know, the reason which people invest in you. is because they want uh the crypto exposure, but they also want to try and minimize uh the drawdowns.

You know, they don't necessarily know when to the right times to buy and sell and you know, no one knows exactly, but um, you know, you do the best you can. How do you attempt to minimize the downside? Yeah, there's a couple of ways, but I would say the main thing is uh as I said, we trade technically. So we always have stop losses on on pretty much everything that that uh that we have a position on like actively in the market. But more broadly, we look at the market structure.

And I will admit, like even a couple of months ago in May, with the way that the market was and everything that it was telling us, at least just purely from a technical basis, there was a very good chance the market, I think most people trading technically would agree, had more downside to come. Um, you know, it bounced off 30, now it's at 50, but the market was not looking great.

For us, we had no exposure in the market the whole time. It was between basically like thirty and thirty-seven. And that was a decision that we conveyed to investors. We said, look. w we would rather buy back if it is higher at say thirty eight K or you know, thirty seven, thirty eight K, rather than go through this and then see another drop to say twenty five K or twenty K in one night.

And it's it's those decisions I think from looking at market structure that you have to make. And they're probably the hardest decisions, but as long as you're you're open about it, because you can look at previous market cycles. Everyone can go back to the chart and put up their fractals twenty seventeen and twenty eighteen and twenty fifteen and whatever.

And you can go through it as many times as you want and you can say, Oh, it would have been so easy to pick, like look at this descending triangle and this and that and you know, the R S I and whatever, whatever. But realistically looking at it when you're in the moment and you're saying, okay, am I going to take my whole book flat? Because like we've got a lot of shit to sell if we are going to do that.

So it's it's very, very difficult and we make those decisions and sometimes we're right and sometimes we're wrong, but we are very quick When we realize that we are wrong, we're very quick to go back and get back into our positions and say, okay, we were wrong.

we are long again and you know, we're good to go and and hopefully the market doesn't come back the other way now. But that's just a fact of life. So for risk management point of view, the biggest thing is getting flat, which is It's hard when you're holding things on all these different exchanges, you've got all these different positions, like it's difficult.

The other parts is, yeah, we use derivatives as well. Sometimes we buy some puts just in case um, you know, the market absolutely collapses. Um, but they're there are the two main things that we look at. Are there any other things you do like you know, just the fact that you are dealing in the crypto market, like this example you gave right at the beginning about this uh flash crash in Ethereum like

you know, that's the absolute last thing you want to become a victim to that while uh you're managing investors' money. Like, are there protections that you take in like I don't even know like where you store assets. I mean how you kind of avoid these uh you know I mean it's it's it's hard you can't say you avoid a black swan event, but like

Other things you do to mitigate the possibility of becoming victim to those things. Like are there some checks that you need to do before you invest in a a new token or something like that? Yeah, exactly. And That's a real that's a hard one, but I'll start off with the exchanges. Like nobody knows which exchange is, you know, forever going to be solvent because even the biggest have

have fallen down at some point or another. Uh although admittedly the new ones are pretty good. Um so shout out to FTX as well that that we use quite a bit. They're great. Look, I I think picking exchanges is is one thing. I think the more exotic that people get within cryptocurrency and you start getting into these like yield farms and stuff like that, and you've got wallets here and wallets and all these different protocols, it gets very hard to manage.

I would say, and this is not just in relation to storage and security, but like stay focused. in the way in which you're dealing with the market, having assets everywhere and working on all these different strategies like you can lose sight of it. And storage of all of these keys if you're just a personal investor is like really difficult as well. I mean, I've lost enough crypto. I'm sure there's a lot of people out there that have as well, just through like purely stupid mistakes.

If you really have a you know, if you're if you're trading on behalf of investors, then get some custody. um, you know, use fireblocks or copper. There's a few different sort of like institutional grade infrastructure out there that's really good for this sort of stuff. Outside of that I would say like be wary of the stuff that you're trading, particularly in terms of liquidity.

Because things may look good on charts, but all of a sudden liquidity can just be pulled like instantly, particularly if you're dealing with small cap sort of stuff. So like do your research into these coins because this stuff can sort of it can just get wiped out. anytime in like minutes. Um and that's why like I say the most new investors, stick to like the top 10 or top 20. You may not be getting like a hundred X return out of them, but at least it's going to introduce you into the market.

And um, you know, you're not going to get burnt on some, you know, penny coin that's that's, you know, two cents or something and and then someone rug pulls it.

There's a list of probably a hundred things. I think most of them for for the most part, they're about security. So Pick a good exchange is is the main thing to at least start off with because then you don't have to really worry about keys. And if you're building up a decent balance, don't keep it on an exchange either. You then need to move it off and on and off and on. Are there any dead giveaways that you are dealing with or you've come across a scam coin or token?

I I look I think that there's a couple of there's a couple of signs. I think usually what we've seen um just from like if we talk about like the management of a new coin that comes in, obviously nowadays you've got a lot of anonymous teams starting so you don't even know who they are.

Which for some reason people actually think is cooler and they get more money now, which so like, yeah, I don't know. You know, it used to be, as I said before, we used to see I I guess a lot more people come in from absolute non tech related stuff. that would come in and raise money, which obviously was just going to get, you know, it was a scam. You know, the money was going to go into their pocket. Um, those sorts of things, but also when you're looking through investments.

coins, have a look at what the team owns. Okay, every coin that is out there has a team allocation. And every team allocation is subject to vesting. That vesting can be anywhere from like, you know, six months up to ten years. If it's on the shorter side of six months or twelve months, eighteen months, that's where you gotta start already asking some questions as well.

Um, because, you know, th these these are the guys that want to get incentivized rather quickly. As well as I guess to add to that, some of these guys have very large foundation reserves. And when you start seeing you can look at this on chain. If you ever start seeing these reserves that they have, which is meant for like operational costs, if you see them start sending them to an exchange or something like that.

That's another sort of sign from an on-chain perspective that could mean they're just liquidating and selling against you into the market if you were buying. So it's it's hard to identify this sort of stuff. And to be honest, it's it's it's difficult because there's so many transactions per day. But if you have the right tools to look into some of these cryptocurrencies, you can uncover pretty much anything. Are there any tools just off the top of your head that you'd recommend?

I think the one I mentioned before for on chain analytics is really good. It's called Nansen N A N S E N. You'll be able to find it. I think it'll be o it's the only thing that will come up for that. That's for on chain analytics. Also, if if you're looking for the derivatives, data and options and stuff like that, I highly suggest looking at a platform called Levitus, which is L-A-E-C.

E V I T A S. It's all free, which will show you all of the options, data relevant to writing and writing covered calls. Matt, one last question for you. Might put you on the spot a little bit here. Hope not. For any traders or I don't know if traders is the right word, but for maybe anyone who got drawn in during the most recent bull run in crypto, uh, you know, at the early twenty twenty one.

Who sort of just put some money into it and got interested, got sort of drawn into the market just recently, uh, maybe got burned as well behind the top, but now kind of sees that You know, this is something I want to take a little bit seriously. Are there any final words of wisdom you'd leave with them to make their time in crypto a little bit easier? Yeah. Look, I would say that honestly I've traded most markets in in my career.

There is nothing that will give you opportunity like crypto in terms of trading it. The amount of risk versus reward is just. unfathomable in comparison to anything else, stocks or Tesla or even meme coins like GME. So take that seriously for a moment, but at the same time I would suggest that any new entrant there's this old saying that if you can't sleep at night, your position is too big. And that applies to anything, including crypto.

So if you're looking to allocate into crypto, do it. And I strongly recommend you do it. Um, at any price. It doesn't really matter. Okay. Buy the high and just wait for it. As long as the exposure that you are putting into the market is something in which you're not going to lose your shirt over. That is what's important.

Um, because you don't want something you don't want to be loading up your credit card and putting it on crypto because it is a volatile game. There's a lot of people out there that are that are really smart that are trading it as well. And there are some bad actors, there's also a lot of good actors.

So just keep that in mind going forward and make sure you're pos positioned um, you know, appropriately for you so that you're not stressing out. And if you do that, I think you're bound to make money at some point in time. Matt, where should people go to find out more about you? Website, Twitter, etcetera? Sure, uh our Twitter is Astronaut CapC A P and then you can find us on our website astronaut.capital.

Okay. And you also published some research as well. Is that under the same banner or separate? You will find a lot of it on our same website, yeah, on Astronaut Capital. Okay, awesome. Well Matt, I've got to say this has been awesome to chat with you. I'm you know, it's been long overdue that I have another crypto trader on the podcast. So uh yeah, appreciate your time, man. And um it would be great to chat again at some point. Thanks Aaron. I loved it. Really enjoyed it. Cheers.

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