Crypto Crash: How Hedge Funds Profited as Trillions of Dollars Vanished

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Bitcoin in a crash:

the largest cyber currency alone has lost around 70 percent since its peak in November

Photo: imageBROKER/Michael Weber / imago images/imagebroker

"Never grab a falling knife," is a stock market bon mot.

Nevertheless, good money can be made on the stock exchanges when prices are falling.

Even with crypto assets such as Bitcoin and Co, which recently experienced a panicked sell-off and have long been under the surveillance of the US Securities and Exchange Commission (SEC).

While trillions of dollars evaporated in the recent cryptocurrency crash, some computer-controlled hedge funds apparently managed to profit from the turmoil by betting on falling prices.

Hedge funds use complex mathematical models and algorithms to try to predict and capitalize on price movements in cryptocurrencies and other markets.

According to a report in the Financial Times, former Lehman Brothers and Morgan Stanley dealer Jay Janer is one of those who has achieved this feat in the past.

Janer is a founding partner of KPTL Arbitrage Management based in the Cayman Islands.

His Appia fund, which strategically bets on rising and falling crypto futures prices, benefited from the $40 billion crash of freely tradable cybercurrency Luna last month.

Its computer-controlled fund placed bets on falling prices — so-called short positions — to profit from the crypto token’s rapid decline.

Luna plummeted from $80 to near zero in a matter of days.

"We made good money with Luna," quotes the "FT" Janer, who lives in Sao Paulo according to his LinkedIn profile.

"The model followed what was happening in the market. The market collapsed and the model stepped in."

Janer's fund had also bet against bitcoin and ether before targeting smaller tokens.

The graduate of the US elite university Stanford seems to feel comfortable where things really get rough: "It's wonderful to have a market that's moving so quickly."

His fund has gained around 20 percent since the beginning of the year, while hedge funds have lost an average of 2.9 percent in the first five months of this year, according to data provider HFR.

According to the report, London-based asset manager Atitlan Asset Management also reportedly benefited from the crypto crash after its algorithms, which look for tradable market patterns, went short in Luna futures.

For most crypto investors, on the other hand, the year has been one of great pain and extreme losses so far.

Bitcoin has lost around 70 percent of its value from its record high of $69,000 in November, while the value of all cryptocurrencies has slumped in parallel from $3.2 trillion to less than $1 trillion most recently.

On the other hand, the recent drop in prices and the increasing volatility appear to offer a lucrative investment opportunity for quantitative hedge funds, whose operators are relatively indifferent to whether prices rise or fall.

Some larger players in the market have deliberately entered niche markets such as crypto futures in recent years in order to avoid increased competition and generate higher returns.

According to "FT",

, founder of Systematica Investments, also benefited from the sell-off in Bitcoin and Ether.

Your $6.7 billion Alternative Markets fund is up about 16 percent this year.

Systematica itself did not want to comment on possible profits in the middle of the crypto crash.

 , founder of the London-based hedge fund Florin Court,

was a little more talkative .

"Our short cryptocurrency positions have been strong markets for us lately," said Greenig, whose fund is up around 15 percent this year.

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