Arbitrage Trading Crypto Hedge Fund Evades the Bears

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The majority of funds based on crypto assets are down this year, but not all of them. A hedge fund that engages in arbitrage trading has actually performed well in 2022.

The crypto contagions of 2022 have put additional pressure on already depressed asset and fund prices. However, one company appears to have bucked the trend with its crypto hedge funds.

Pythagoras Investment Management has two funds that have made gains in a year when most others have lost.

According to Bloomberg, the firm’s Market Neutral Fund and Pythagoras Token Fund have gained around 8% this year.

Arbitrage Trading Gains

The Market Neutral Fund has no direct exposure to digital asset prices, hence its performance. Furthermore, crypto markets have tanked 61.5% since the beginning of this year.

The fund engages in arbitrage trading, which involves buying the same tokens in different places at different prices. It makes a profit on the difference between those prices for the same asset, buying low and selling high.

Pythagoras CEO Mitchell Dong said that the fund outperforms in bear markets, adding:

“Our absolute-return funds are positive whether the market’s up or down — whether it’s a bull market, a bear market, we’re going to have positive returns.”

The other fund follows trend indicators and has been shorting crypto markets this year.

Additionally, Pythagoras has actually done well from the FTX fallout. Its arbitrage fund had a 10% exposure to the exchange before the meltdown. The company has received about 7% of its funds back, which it used to short FTT, the exchange’s native token.

Dong added that the funds operate on the psychology of retail traders, which adhere to short-term trends.

Pythagoras was started in 2014, and according to Dong, it aims for smaller, more stable returns from the asset class. “I want steady returns of 1-2% per month, with no losing months. That’s the target,” he said. He added that crypto was a rapidly changing market:

“In crypto, every day is drama, and every week is an adventure. Every quarter there’s a paradigm shift and every year is a decade in traditional finance.”

Major Crypto Funds Falling

The world’s largest crypto fund, Grayscale’s GBTC, has tanked this year along with its underlying asset.

GBTC has lost 74% since the beginning of 2022 and is currently trading at 8.98 per share. Furthermore, the Grayscale premium is at a record low of -42.34%, according to Ycharts. The metric is the fund’s premium, or discount in this case, compared to BTC prices.


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