"Stocks No Longer Make Sense To Me" - Here's Why Quants Are Embracing Bitcoin

Since bitcoin first seeped into the public consciousness in 2013, the stereotypical image of the cryptocurrency trader is the 25-year-old tech bro who uses phrases like "YOLO" and "FOMO" when describing his trading strategy and general investing philosophy.

In more recent years, the image of the mom-and-pop crypto trader has taken hold, as Mrs. Watanabe - the archetypal Japanese and South Korean house wife once known for trading foreign exchange - has migrated to trading bitcoin and ethereum.

But as the Financial Times pointed out in a story about financial professionals dabbling in crypto markets, the hoodie-wearing twentysomething described above isn't entirely representative of the crypto community. In fact, many former Wall Street professionals - some with backgrounds working at hedge funds or quantitative trading shops - have embraced cryptocurrency trading.

Cryptocurrency

And while the allure of obscene returns is obviously one reason for the attraction, one venture capitalist interviewed by the FT offered an even more revealing answer:

He embraced crypto after becoming disillusioned with traditional markets, which "no longer make sense" thanks to nearly a decade of central bank intervention.

"I’ve been out of the stock market because it stopped making sense to me," he says. Central bank support for the markets plus the trend of passive investing have turned it into a game with unclear rules.

"Over the past few years or so, everyone has just been buying indexes and they haven’t been doing price discovery. They’re just investing in a trend of something going up and up and up," he says.

Until very recently, volatility in global stock markets had fallen to one of the lowest levels in history - making life difficult for quantitative traders who leverage up and play for small moves.

But in the crypto market, circumstances couldn't be more different. Such high volatility is essentially a quantitative traders' dream.

"In a days worth of cryptocurrency movement you have a week or a month of equity market movement or a decade of country debt," he said.

Another apt description came from a hedge fund trader who said financial professionals are drawn to bitcoin for the same reasons they're drawn to the poker table.

"It's fun," one hedge fund trader said, adding that she did not want "fomo," the acronym for 'fear of missing out'. One London-based banker was more blunt: it was gambling for people who could afford to lose a bit of money. "That's it. Nothing else."

We're not sure the surprising number of people who bought bitcoin on their credit cards last year would agree.

Comments

overbet IH8OBAMA Sat, 02/10/2018 - 13:37 Permalink

"I’ve been out of the stock market because it stopped making sense to me," he says. Central bank support for the markets plus the trend of passive investing have turned it into a game with unclear rules.

"Over the past few years or so, everyone has just been buying indexes and they haven’t been doing price discovery. They’re just investing in a trend of something going up and up and up," he says.

 

BTC trading with exchange hacks that can wipe out your trading account, random unknown occurrences such as tether injections, no regulation, violent volatility, countless other unknown variables including random regulation all makes sense to you. You can forecast accurate price discovery in a market like this? This guy is fucking nuts. 

In reply to by IH8OBAMA

caconhma overbet Sat, 02/10/2018 - 19:08 Permalink

These traders have nothing to do with "price discovery". They are not interested in "buy and hold" activities since they are casino gamblers. 

I see nothing wrong with gamblers, who are destroying the US economy and financial markets, are leaving and/or losing money.

I am more concerned with the Trump's runaway budget and resulting runaway inflation.

In reply to by overbet

any_mouse Justin Case Sat, 02/10/2018 - 19:08 Permalink

Depends. Market value of beef now versus future market value of milk.

How much will feed costs be in the future? Droughts? Floods?

Risk of the cow dying prematurely?

Time Value of Money. Risk sensitivities.

Could the farmer use the beef money as Capital to grow his business beyond Dairy?

One might want to understand the functions of Commodity and Currency markets before investing in crypto currencies.

In reply to by Justin Case

TheWholeYearInn TeamDepends Sat, 02/10/2018 - 14:29 Permalink

Well ~ for the RARE & VALUABLE MAFF critics around here, let's take a look at how many licks does it take to get to the center of a Tootsie Pop.

 

vis-a-vis GOLD (& how it's created)

 

The strong nuclear force (the force that binds together the elements in the nucleus of an atom) has a value of 0.007. If that value had been 0.006 or less, the Universe would have contained nothing but hydrogen. If it had been 0.008 or higher, the hydrogen would have fused to make heavier elements. In either case, any kind of chemical complexity would have been physically impossible. And without chemical complexity there can be no life.

The physical possibility of chemical complexity is also dependent on the masses of the basic components of matter: electrons and quarks. If the mass of a down quark had been greater by a factor of 3, the Universe would have contained only hydrogen. If the mass of an electron had been greater by a factor of 2.5, the Universe would have contained only neutrons: no atoms at all, and certainly no chemical reactions.

Gravity seems a momentous force but it is actually much weaker than the other forces that affect atoms, by about 10^36. If gravity had been only slightly stronger, stars would have formed from smaller amounts of material, and consequently would have been smaller, with much shorter lives. A typical sun would have lasted around 10,000 years rather than 10 billion years, not allowing enough time for the evolutionary processes that produce complex life. Conversely, if gravity had been only slightly weaker, stars would have been much colder and hence would not have exploded into supernovae. This also would have rendered life impossible, as supernovae (creating GOLD in the process), are the main source of many of the heavy elements that form the ingredients of life.

 

Naturally ~ the same HEAVY ELEMENT phenomenon allows for the creation of atomic weapons, and carbon units who carp on about RARE & VALUABLE MAFF while riding their tractors in fields with nutrient rich soil which yield food for the aforesaid carbon units, & whereby SOME of those carbon units who think they're 'chosen' are enamored with a Sampson Option, when their desire for control of ALL carbon units spirals out of control.

 

In reply to by TeamDepends

any_mouse IH8OBAMA Sat, 02/10/2018 - 19:31 Permalink

Mathematical models versus human sentiments.

Which has more importance in a human run marketplace?

Bitcoin has value because it is currently popular among a fraction of humans.

Those with enough real wealth to afford to speculate are diversifying a small portion of their cash wealth into crypto currencies. The value can go to zero and they will still be wealthy.

Lost Opportunity versus Lost Principal.

In reply to by IH8OBAMA

any_mouse turduckens Sat, 02/10/2018 - 19:42 Permalink

Depends.

Used to be that companies had real assets,such as real estate, buildings, capital equipment, and investments.

Thus the value of a company could never go to zero.

Now with ZIRP, a lot of that is financed, borrowed money, debt.

Therefore companies can now go to zero.

ZIRP is one of the worst crimes against humanity in history.

In reply to by turduckens

Bunga Bunga any_mouse Sat, 02/10/2018 - 21:16 Permalink

Value of companies can go to zero very quickly as we have seen during the last financial crisis long before ZIRP. That you own a piece of a company when you invest into their stock is an illusion, that gets destroyed during the bankruptcy procedure very quickly.

In reply to by any_mouse

any_mouse garypaul Sat, 02/10/2018 - 19:50 Permalink

Some of these card purchasers were family types with mortgages who would not have disposable income to pay off a crypto purchase and were therefore depending on the crypto to rise greater than the interest rate on the card debt.

Speculating on Margin.

When the value of the investment drops below the amount of debt, mass defenestrations follow.

In reply to by garypaul

ThinkerNotEmoter Sat, 02/10/2018 - 13:24 Permalink

First they embraced Tulips.

Then they embraced snake oil.

(Edit) Then they embraced pet rocks.

Then they embraced Beanie Babies.

Then they embraced Madoff.

Now they embrace sets of electronic 1s and 0s.

But this time will be different.

HRClinton ThinkerNotEmoter Sat, 02/10/2018 - 13:34 Permalink

Speaking of Cons...

First they embraced Shamans & Witch Doctors

Then they embraced Priests

Then they embraced Rabbis

Then they embraced Imams

Then they embraced Ministers

Then they embraced everything these Charlatans and Parasites sold them.

Then you wonder why things are the way they are.

Organized Religion and its hollow promises -- THE oldest con in the history of mankind. 

 

Got Perspective? Got Clarity? Got an Action Plan?

In reply to by ThinkerNotEmoter

any_mouse Consuelo Sat, 02/10/2018 - 20:02 Permalink

If only everyone would think and act the same, then we could have the "Glorious World of Next Tuesday"(TM).

Competing desires for organization and for individuality.

Humans are multidimensional in behavior and motivation.

AI at its base is 1's and 0's. True, False.

Humans are different. Only physical gender is binary.

How much does coercion, threats of force, play in organizing larger groups of humans beyond a small community/herd?

In reply to by Consuelo

any_mouse overbet Sat, 02/10/2018 - 20:09 Permalink

Different Horses for Different Courses.

The moment that PMs get "marked up" will be the instant before the death of the Central Bank debt based monetary system.

"Gnab Gib", credit to Douglas Adams.

PM prices are currently "fixed" by a small group in The City of London. Does that sound at all like "market pricing"?

In reply to by overbet