A little-known virtual currency fund heavy on math and statistics is turning a steady profit under a lead trader who once oversaw a major cryptocurrency exchange. Kim Kardashian West’s beauty line is being sued by a competitor, who claims KKW could divulge its trade secrets. CAMAS — After a delay, the Camas Farmer’s Market opened for its 12th season earlier this month.
A little-known virtual currency fund heavy on math and statistics is turning a steady profit under a lead trader who once oversaw a major cryptocurrency exchange.
Galois Capital, a San Francisco cryptocurrency hedge fund that launched in January 2018, said in an investor letter and financial filings that it increased its holdings from $10 million to $23 million in two years with high-frequency trading and funds from new investors lured by returns. A quantitative fund manager, Galois Capital computationally makes bulk volumes of speedy, precise trades shaped by its founder and lead trader Kevin Zhou, previously head of trading at American cryptocurrency exchange Kraken, and a team of technical talent.
Related: Kraken Launches Crypto Exchange Service in Australia
Quantitative approaches to trading are wide-ranging. They might encompass regression modeling, direction and magnitude calculations for price prediction or stochastic processes for volatility modeling and options pricing, Zhou said. On the technology side, programming interfaces, trading software and hardware equipment enabling fast communications and data analysis with exchanges are used.
Galois Capital built much of this architecture from the ground up, with custom tools such as co-located servers and network adapters, due to what Zhou cites as a dearth of heavy-duty options for cryptocurrency traders found at Hudson River Trading and Jane Street Capital, two of the biggest Wall Street quantitative trading funds.
Overall, the quantitative bent is still relatively tame at Galois Capital. For Zhou, sophisticated trading models and technologies, such as the machine learning software the fund experimented with and shelved, are sometimes overkill in this era of cryptocurrency markets.
“What works is a lot simpler than what would work in traditional markets,” said Zhou. “Some of these models that we have right now would not work in traditional markets, in more mature and more efficient markets.”
While trading is easier in the crypto-asset class than in traditional asset classes, Zhou said, the field has gotten more competitive since he managed from 2013 to 2017 at Buttercoin, a bygone bitcoin exchange backed by Silicon Valley-located startup incubators Google Ventures and Y Combinator, and from 2015 to 2017 at the trading desk at Kraken.
At Buttercoin, “the sizes of transactions were a lot smaller. The spreads were a lot bigger. I remember there were days where you were getting 100 bps [basis points] just trading $100,000,” said Zhou. “At Kraken, spreads tightened up a bit. It was like 40, 50 bps on $200,000. Now, it’s a lot tighter, probably a million dollars gets 10, 15 bps.” A spread is the difference between a financial instrument’s bid and ask price; a “bp” (pronounced “bip”), or a basis point, reflects a 0.01% change in a financial instrument’s value.
Considering Kraken is valued at $4 billion and processes millions of dollars in cryptocurrency flows each month, Kraken’s trading desk was an all-seeing looking glass into why cryptocurrencies are bought and sold in a large corner of the market. It gave Zhou a knack for sizing up counterparty motivations with Galois Capital’s programmed trades, where the other trading actor is faceless.
“When you’re market-making with bots on all these different exchanges, you don’t actually get matched up with on the other side,” Zhou said. At Kraken, his trading desk dealt with miners and investors, up close and personal, who gave context into their market movements. “So just being able to read Kraken’s book,” as in the exchange’s record of buy and sale orders, “is definitely informative.”
In terms of trading volume, Galois Capital went from processing $671 million to $1.4 billion between 2018 and 2019, the investor letter says. While non-algorithmic trades shrunk from $666 million to $562 million, its algorithmic trades blew up from $5 million to $876 million to enlarge the fund’s share in crypto-asset markets.
According to Zhou, about 85% of Galois operations are geared towards liquidity provision, matching crypto-assets at prices quoted by bidders, similar to services offered by Genesis Trading, Cumberland DRW and Circle. The other 15% of operations were focused on hedge fund management of cryptocurrency plays. Galois Capital started with over-the-counter (OTC) trading — manual liquidity provision and Zhou’s specialty at Kraken — and branched out into algorithmic market-making — automated liquidity provision — and discretionary trading.
With market-making, generally you don’t want to be holding onto risk for that long. What I mean by that is more than 30 seconds.
“Liquidity provision in the traditional markets is handled by prop shops rather than hedge funds. So we’re in kind of a unique situation in that most crypto funds are long only in these different token s, or they’re long-short and look at factors like trying to detect momentum signals and reverse signals,” Zhou said.
“I want to be able to generate profits regardless if the market’s moving up or down, regardless if there’s momentum or reversion, just based on the micro-structure of the market, just based on providing compensation for providing liquidity to the market,” Zhou said. “To me, that seems a lot safer and generally, as a trader, I’m more conservative.”
The Class A fund was, however, more volatile than the Class B fund: According to the investor letter, the Class A fund tumbled 22.4% in 2018 and spiked 66.8% in 2019; the Class B fund ticked up 33.9% in 2018 and 19.3% in 2019.
Galois Capital opened cryptocurrency futures and swaps in April 2019 and long-short trades in August 2019 to more cheaply hedge spot exposure and arbitrage price disparities with derivatives, the investor letter says. It will also initiate cryptocurrency options trades on the Deribit exchange in the fourth quarter of this year, but the plans are tentative to exercise caution over low and therefore risky options volume. Deribit alone trades less than $50 million a day.
Galois Capital has done some notable long-short trades, such as going long bitcoin at $3,750 in December 2018 and buying the FTX crypto-derivatives exchange’s FTT coin at $0.10 in April 2019, according to the letter.
The firm took the optimistic bitcoin position at a market low on the view that industry-wide hedge fund investment redemptions had subsided, that a crash in initial coin offerings — virtual currency investment structures highly correlated to bitcoin — had bottomed out and that legal measures surrounding Mt. Gox bankruptcy proceedings had abated bitcoin selling pressure.
And, due to a close relationship with FTX’s parent company Alameda Research, Galois Capital saw FTT as undervalued at the time of its investment. The coin sale was “very rushed and did not tap all of the available capital” despite “a surplus of demand on the sidelines,” the investor letter says. Galois Capital exited the FTT long position at a price between $0.80 and $1.94 while retaining some holdings of the coin.
In the coming year, Galois Capital will trade against its own market-maker, combining its liquidity and hedge fund services. Borrowed from traditional prop trading shops Two Sigma, Jump Trading and Tower Research, the strategy is aimed at improving long-short trading efficiency. According to the letter, Galois long-short traders have accidentally taken opposite positions and strive to trade independently without confusing each other’s profits and losses.
- Ex-Kraken Trading Head Leads Crypto Quant Fund With $23M in Assets, $2.3B in Trades
- Ex-Kraken Trading Head Leads Crypto Quant Fund With $23M in Assets, $2.3B in Trades
Author: Ada Hui
Kim Kardashian West’s Beauty Co. Sued Over Trade Secrets
Kim Kardashian West’s makeup line is on the verge of giving up a treasure trove of beauty secrets to another cosmetics company … or at least that’s what one company fears.
KKW Beauty is being sued by Seed Beauty, a company that claims there’s a concrete threat KKW will disclose Seed’s metaphorical secret sauce … if Kim’s company gets bought out.
According to docs, obtained by TMZ, Seed Beauty says it went through this with Kylie Jenner’s old parent company, King Kylie, back in 2016 when Seed used its valuable trade secrets to grow that brand … which was acquired by Coty in 2019. In the suit, Seed says it warned Kylie not to disclose trade secrets during that deal, but didn’t get much reassurance.
Now, with Coty seemingly on the verge of acquiring Kim’s beauty line, Seed Beauty says it’s again deathly afraid Coty, the competition, will gain Seed’s precious intel from KKW.
SB claims it started working with KKW Beauty about a year after it started working with Kylie Cosmetics.
Now, Seed Beauty is asking the judge for an injunction blocking KKW from revealing its trade secrets and business practices to Coty … and other damages.
Camas Farmer’s Market opens after delay due to coronavirus
Published: June 19, 2020, 6:01am
CAMAS — After a delay, the Camas Farmer’s Market opened for its 12th season earlier this month.
The extra time was spent working with the city to create a plan for the market that would be safe during the COVID-19 pandemic.
“We’ve always promoted the farmers market as a social gathering place,” said Tina Eifert, program coordinator for the Camas Farmer’s Market. “We’ve had to completely flip that model. Farmers markets are now solely places to get nutrient-dense food.”
On the market’s opening day June 3, a U-shaped line of people wearing masks formed behind a sign that said, “Welcome! Line Starts Here.” This season, there’s only one entrance to the market, which stretches along Fourth Street between Everett Street and Franklin Street.
Shoppers must stand 6 feet apart and circle through the booths clockwise, exiting the market right near where they enter. Hand-washing stations are placed at the entrance and throughout the market.
To keep the market no-contact, shoppers can’t handle products. They must use cards or exact change for payment, and bag their purchases.
Market organizers ask that only one person per household shop and leave quickly, or better yet, preorder. They ask that shoppers wear face coverings, and urge people to stay home if they are sick or have symptoms like fever, cough, sore throat or shortness of breath. The market allows no pets, only service dogs.
The stripped-down market offers no samples, music, kids activities or food trucks.
It isn’t just the absence of a guitar player and the Funky Fresh juice truck with its line of thirsty smoothie-seeking patrons that makes the market seem empty. It has only 12 booths instead of the usual 30 to 35.
Carrie Schulstad, who has been a part of the market since joining the founding board 13 years ago, said she’s sad that many of the longtime vendors couldn’t participate in the market’s opening this season.
Nonetheless, Schulstad said she’s happy the market offers the community “the healthiest grocery store that you can imagine.” And she remains hopeful that more vendors can be added as the season continues.
For now, booths at the market are dedicated solely to produce and other locally grown edible products. On opening day, asparagus, snap peas, salad greens and strawberries filled booths. Reister Farms offered locally grown lamb and eggs. Honey City sold honey and bee pollen from Vancouver and Brush Prairie. A rainbow of microgreens and bright edible flowers filled the Harvest of Peace booth.
Newcomer Christina Safford, aka the Lady in the Window, sold her homegrown herbal tea mixes, including lemon balm and orange ginger, as well as plant starts. Emerald-colored mint leaves, palm-sized orange slices, and wandlike cinnamon sticks floated in glass bottles that glistened in the sun at the corner of her booth.
The Camas Farmer’s Market continues to fulfill its mission of making healthy, locally grown produce available to all people in Clark County by encouraging the use of Supplemental Nutrition Assistance Program benefits. Financial support for the market has taken a hit as the economy has suffered during shutdowns, but the Camas market still offers up to $10 in matching funds per SNAP user.
The current vendors will remain at the market for the rest of the season. Eifert hopes to add more booths and products, especially flowers, to the market as Clark County progresses through the phases laid out in Gov. Jay Inslee’s gradual reopening plan.
The goal is to add back all the vendors at some point, but activities, musicians, and food trucks won’t be returning this year.
Opening day ran smoothly, and Eifert is confident that the market can safely operate this season.