Home Cryptocurrency $200M hedge fund pauses crypto arbitrage trading amid market downturn

$200M hedge fund pauses crypto arbitrage trading amid market downturn

by Gordon James

The cryptocurrency market has been suffering from a slump for the past few weeks, with a total market capitalization dropping from about $800 billion at the beginning of July to about $350 billion today. In response to this, a $200 million hedge fund called Arbitrager has halted all of its trades, as the fund’s arbitrage strategy would have been thinned even further. However, despite the hiccup in trading, Arbitrager’s chief of operations, Michael Terpin, said the fund is still profitable and that cryptocurrency arbitrage is a profitable trading strategy.

With the cryptocurrency market showing signs of a downturn, a $200M hedge fund has reportedly paused arbitrage trading in the digital currency space.

Cryptocurrency hedge fund Nickel Digital Asset Management has taken a cash position after the cryptocurrency market collapsed in May.

According to Bloomberg, a $200 million crypto-currency hedge fund run by alumni of JPMorgan and Goldman Sachs has reallocated its capital in anticipation of another explosion in crypto-currency prices.

Before investing in cash, Nickel Digital focused on cryptocurrency arbitrage opportunities arising from cryptocurrency price differences in the cash and derivatives markets.

In fact, arbitrage trading in cryptocurrencies has reportedly generated double-digit annual returns for institutional investors with sufficient capital to earn significant returns on these immediate price spreads. These trades are market neutral rather than directional because the focus is on price differentials rather than price action.

Anatoly Krachilov, CEO of Nickel Digital, explained the fund’s investment thesis to Bloomberg: We don’t make targeted bets, so whether bitcoin goes up 300% or down 70%, we will try to take advantage of arbitrage opportunities arising from market changes, he added :

Our market-neutral, low volatility strategy is designed to generate positive returns regardless of market direction. It is designed to help investors with a low risk tolerance enter the cryptocurrency market.

Nickel Digital reportedly returned 29% with 3% volatility, well below the 78% average for the crypto asset market. However, the rise of bitcoin (BTC) in April and the subsequent capitulation of altcoin in May would have undermined these arbitrage opportunities for hedge funds like Nickel Digital.

Bitcoin’s 50% decline from a record high of $64,000 led to a wave of liquidations in the futures market, particularly for over-leveraged long positions, totaling about $9 billion. Altcoins are also down over 70% and price movement remains sideways and cumulative with frequent declines of 10-15%.

Related: Bitcoin will reach $160,000 this year, says CEO of Celsius

So far for Krachilov, it’s a matter of wait and see: June will be remembered as a month of money and waiting. The CEO of Nickel Digital also said that the current market downturn is not unusual for crypto investors in a long time.

The head of a crypto hedge fund said institutional investors are starting to see crypto investing as a lesser reputational risk. Banks in the US and Europe are beginning to offer direct bitcoin transactions for both individuals and large businesses.

Back in June, Alex Maszynski, CEO of crypto-currency lending platform Celsius, told Cointelegraph that he thought bitcoin would reach a new all-time high of $160,000 by the end of the year.

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