Morning Coffee: Exquisite pain of the arrogant crypto bros. Why analyst jobs are proliferating in hedge funds
The schadenfreude is strong today. After the extravagance of Miami, with its crypto volcano, the ideological purity of Sam Bankman-Fried, who sleeps on a beanbag and gives most of his money away, and the repeated insistence that crypto is coming to take over the word, the death spirals and instability are not absent a certain satisfaction among those who've always said, "I told you so."
Chief among them is Stephen Diehl, the programmer who spends his time pointing out crypto's absence of clothes on Twitter. "In the Savings and Loan crisis, the previous financial crisis, there were over 30,000 criminal referrals and over 1,000 felony convictions. Perhaps we should go back to that model," tweeted Diehl yesterday.
That may be taking things a little too far, but questions will certainly be asked and sympathy may not always be extended. The Wall Street Journal suggests that Do Kwon, the man behind TerraUSD, the algorithmic stablecoin that collapsed this week was guilty of a degree of arrogance. “He will call anyone who questions him an idiot,” Eric Wall, chief investment officer of Scandinavian crypto hedge fund Arcane Assets, told the Journal. Kwon has named his new daughter Luna, the coin he created to run alongside Terra in its 'algorithmic stabilization mechanism.' When she was born last month, he Tweeted: "My dearest creation named after my greatest invention.” Not much modesty there, then.
Kwon is optimistic of a comeback. “Terra’s return to form will be a sight to behold,” he wrote on Tuesday when Terra was trading at 50% of its intended value. It's the nature of crypto bros that the others probably are too, but there's a lot of blood on the floor. Finance Insider has a long exposition on all the money they've lost in a series of Tweets: Bankman-Fried may take to a bed now that his net worth is halved; Coinbase founder Brian Armstrong is now worth a mere $2.2 billion from $13.7 billion in the recent past.
The billionaires will be ok. It's the retail investors that will not be. The Terraluna forum on Reddit is filled with terrible stories of individual catastrophe. Bloomberg spoke to a 30-year-old freelance marketing consultant whose $10k has become $200. People are suicidal. Others are going to lose their houses. At the very least, this is likely to lead to more regulation. It may even prompt Kwon to embrace some self-doubt....
Separately, if you're looking for a job in a hedge fund now, you might want to try being an analyst.
Analysts have always been more populous than actual portfolio managers, and that dynamic seems to be increasing. Bloomberg reports that Balyasny has been building out teams of analysts to support its portfolio managers: previously, each Balyasny PM had one or two analysts to support him/her; now he or she has three to five.
The additions seem related to an increase in risk-taking. Bloomberg says the number of bets per strategy has increased fivefold at Balyasny. Macro trading is now 33% of the fund's risk, whereas it was a minor strategy previously.
Meanwhile...
Sam Bankman-Fried has a new automated risk management technique that everyone thinks is crazy. “This model could exacerbate financial instability in a time of heightened market volatility.” (Financial Times)
If one Terra goes down to $0.90, the arbitrage mechanism — you exchange one Terra for $1 worth of Luna, and then sell your Luna into the market for $1 — just doesn’t work. You exchange one Terra for $1 of Luna, but confidence in Luna is also falling, and the market is being flooded with Luna as people try to do this arbitrage. So the $1 worth of Luna you received is no longer worth $1.... (Bloomberg)
It's a bad time for IPOs in South Asia. In the past week, deals could have raised up to $1.19 billion in a market that hasn’t seen a big IPO since January have been pulled. (Bloomberg)
Empathy is the new post-pandemic management technique. (WSJ)
Hedge fund Elliott is closing its Tokyo office and shifting Asia investing to London. (Financial Times)
Hedge fund HSBC has begun an internal study to rebut shareholder requests that it split up. (Bloomberg)
Fidelity has hired around 70 people across private markets in London in the past year. (Bloomberg)
Crypto addiction is rising. “The majority of calls that I’m getting tend to be around crypto, sports betting and NFTs. It’s very much on the radar of treatment providers right now.” (LATimes)
“How would it affect your life if it turns out that investors have mispriced the super-senior risk in synthetic collateralized debt obligations built out of subprime mortgage tranches,” that person would have said “I have no idea what you are talking about, but I can’t imagine how that collection of words would affect me.” But it did. (Bloomberg)
One banker tells me his hedge fund clients are watching closely now, with several taking seriously the possibility that a big crash in crypto, if it happens, could be supportive for that most crucial of markets, US government bonds, again on the notion that it would spark a rush to safer places to park cash. (Financial Times)
Calling men bald is discrimination. (Bloomberg)
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