WEBVTT - Flash Boys in the Crypto Cloud 0:00:13.840 --> 0:00:16.880 Welcome to What Goes Up, a weekly markets podcast. UM 0:00:16.960 --> 0:00:21.040 Veldona Hi across Acid reporter with Bloomberg, and I'm Mike Reagan, 0:00:21.200 --> 0:00:24.000 a senior editor at Bloomberg, and this week on the show, 0:00:24.120 --> 0:00:27.520 cryptocurrencies have had an awful year. The major coins have 0:00:27.680 --> 0:00:30.960 all had in value or worse as the Federal Reserve 0:00:31.160 --> 0:00:34.440 hikes interest rates and froth leaves the most speculative corners 0:00:34.440 --> 0:00:37.159 of the market. At the same time, retail investors have 0:00:37.200 --> 0:00:39.640 bailed and there are no signs that they're making a comeback. 0:00:40.200 --> 0:00:42.400 We'll get into it with a pro who trades crypto 0:00:42.400 --> 0:00:45.600 on a daily basis. But first, Mike, I wanted to 0:00:45.640 --> 0:00:49.000 ask you a question. I'm wondering if you have ever 0:00:49.120 --> 0:00:53.480 been in a book club? As Pavis used to say, data, 0:00:53.640 --> 0:00:55.680 if I wanted to read, I'd go to school. No, 0:00:55.920 --> 0:00:59.279 no book clubs for me. Now. I I have never 0:00:59.320 --> 0:01:01.880 been in a book club. I feel like it's a 0:01:01.880 --> 0:01:04.080 lot of high pressure to actually read the book. You know. 0:01:04.200 --> 0:01:07.200 If there was like a cliffs Cliff Notes club, I 0:01:07.240 --> 0:01:09.720 would join maybe, But um, how about you? Have you 0:01:09.720 --> 0:01:11.679 ever been in a book club? Of course, I'm in 0:01:11.760 --> 0:01:15.520 multiple book clubs right now, multiple book clubs how many 0:01:15.520 --> 0:01:18.200 book clubs can one woman join? I'm in like two 0:01:18.280 --> 0:01:20.920 or three. I want to say they're small sometimes like 0:01:21.000 --> 0:01:23.520 sometimes it's just me and one other person. Part of 0:01:23.560 --> 0:01:25.840 my reason for never joining is a book club is 0:01:25.880 --> 0:01:29.000 I've never been invited to join a book club. So 0:01:29.120 --> 0:01:31.760 I'm not even gonna ask you if you'll invite me 0:01:31.800 --> 0:01:34.559 to one of your multiple book clubs considering Yeah, I'm 0:01:34.600 --> 0:01:37.080 not inviting and there's no way, there's absolutely no way. 0:01:37.160 --> 0:01:39.960 There's no room for me in any of your multiple 0:01:40.000 --> 0:01:42.600 book clubs. Consider it. I can't even get into your 0:01:42.600 --> 0:01:47.200 professional network on LinkedIn. I assume I'll never get into 0:01:47.240 --> 0:01:50.480 a La book Yeah no, no Lincoln invitation for your 0:01:50.480 --> 0:01:52.720 notebook club for you. And actually I have a story 0:01:52.760 --> 0:01:54.680 for you. I met with some students the other day 0:01:54.720 --> 0:01:57.320 at the journalism school I went to, and I was 0:01:57.360 --> 0:01:59.800 talking to them about Bloomberg and what it's like working there. 0:02:00.080 --> 0:02:03.040 And afterwards, a bunch of them adam me on LinkedIn, 0:02:03.120 --> 0:02:05.520 and last night I logged in and I accepted all 0:02:05.560 --> 0:02:09.640 of them. So students get in mere students, not actual 0:02:10.080 --> 0:02:12.399 and maybe they'll join my book club too. Yeah that's 0:02:12.400 --> 0:02:15.280 not even that's like LinkedIn fraud. They're not even part 0:02:15.280 --> 0:02:19.000 of your professional network. They are just students. Anyway. Well, 0:02:19.000 --> 0:02:21.600 I've I've got news for you and that next week, 0:02:21.639 --> 0:02:24.760 returning the podcast into our own little book club, So 0:02:25.000 --> 0:02:28.359 you better make some room for your multiple book clubs 0:02:28.400 --> 0:02:32.440 to read. Uh. The Paul Volker Memoirs A great time 0:02:32.440 --> 0:02:35.680 to talk about Paul Vulcar Uh with the inflation flight 0:02:35.800 --> 0:02:39.320 going on, the former Federal Reserve chair. Our own colleague 0:02:39.360 --> 0:02:43.040 Christine Harper, one of my buddies at Bloomberg, actually helped 0:02:43.080 --> 0:02:45.040 him write the memoirs, so we're gonna have her on 0:02:45.600 --> 0:02:49.520 to discuss his fight against inflation in the eighties and 0:02:49.520 --> 0:02:52.360 how it relates to today. So like it or not, 0:02:52.480 --> 0:02:55.040 we're in our own little book club here, Bildono. That's 0:02:55.080 --> 0:02:57.920 actually a very very good tease and a good segue 0:02:58.000 --> 0:02:59.919 for the guests that we have on this week. We 0:03:00.080 --> 0:03:04.200 have Michael Safi. He's the managing partner at Dexterity Capital, 0:03:04.240 --> 0:03:07.480 which is a crypto proprietary trading firm. He's joining us 0:03:07.480 --> 0:03:10.120 this week. Michael, thanks so much for coming on the show. 0:03:10.760 --> 0:03:13.040 Thanks for having me. Great to see you both. So, Michael, 0:03:13.040 --> 0:03:16.160 maybe you can just start with telling us about Dexterity 0:03:16.240 --> 0:03:21.480 and what it means to be running a proprietary trading firm. Sure, Well, 0:03:21.480 --> 0:03:24.799 the short version of Dexterity Capital is where a proprietary 0:03:24.800 --> 0:03:28.720 trading firm. We specialize in high frequency trading of market 0:03:28.760 --> 0:03:33.320 neutral algorithmic strategies for cryptocurrency assets. So there's about a 0:03:33.320 --> 0:03:36.280 team of seventeen of us and together we trade a 0:03:36.360 --> 0:03:40.040 few billion dollars worth of crypto per day. Ue we 0:03:40.120 --> 0:03:42.840 treated over one point two trillion, which made us one 0:03:42.840 --> 0:03:45.320 of the biggest traders of cryptocurrency in the world. So 0:03:45.360 --> 0:03:47.400 that's the very brief version of what we're doing out there. 0:03:47.800 --> 0:03:51.200 Market neutral. An interesting time to be market neutral. Michael considered, 0:03:51.200 --> 0:03:53.680 I feel like we've been so range bound in crypto 0:03:54.080 --> 0:03:56.360 at least the last I don't know, six months or so. 0:03:57.680 --> 0:04:01.000 How do you explain this, uh, this tight range around 0:04:01.000 --> 0:04:04.120 twenty thousand in bitcoin and sort of every other coin 0:04:04.560 --> 0:04:06.840 major coin at least kind of falling in place and 0:04:06.880 --> 0:04:11.240 being ranged bound? What what what explains that in your opinion? Well, 0:04:11.240 --> 0:04:13.280 I mean there's a few factors, as we all know, 0:04:13.400 --> 0:04:16.560 with the FED raising rates, money is tightened up, and 0:04:16.600 --> 0:04:19.159 with the kind of big controversies we've had in crypto 0:04:19.279 --> 0:04:23.120 around the terror crash and around the Celsius collapse, retail 0:04:23.160 --> 0:04:25.720 has kind of fled the market. So what's happened in 0:04:25.800 --> 0:04:28.320 recent months is we're seeing a lot more institutional flow 0:04:28.600 --> 0:04:31.159 than we did over the course of the past five years. Now, 0:04:31.240 --> 0:04:34.200 institutional players are smart, So when we might have been 0:04:34.200 --> 0:04:37.160 playing checkers two years ago, we're playing chess now. And 0:04:37.160 --> 0:04:39.560 when you're playing chess, things tighten up, and these guys 0:04:39.600 --> 0:04:41.880 are keeping kind of things in the same range while 0:04:41.920 --> 0:04:44.440 we kind of do price discovery but still try to 0:04:44.480 --> 0:04:47.000 make a good profit. Maybe you can just talk a 0:04:47.040 --> 0:04:49.800 little bit more about the crypto winter, and you just 0:04:49.880 --> 0:04:52.320 mentioned the FED et cetera and some of the other 0:04:52.520 --> 0:04:55.520 factors that have been behind the draw down that we've 0:04:55.520 --> 0:04:58.520 seen this year. And another thing that's been happening in 0:04:58.560 --> 0:05:02.640 crypto is that the major cryptocurrencies at least have been 0:05:02.640 --> 0:05:05.240 trading in the same way that US stocks have, in 0:05:05.279 --> 0:05:08.440 particular tech stocks. So can you talk about that and 0:05:08.760 --> 0:05:12.600 what some of the factors are behind the draw down? Yeah, 0:05:12.600 --> 0:05:15.800 and I think you know, with institutions coming in, they're 0:05:15.839 --> 0:05:18.359 playing by the rules they've always played by. So you know, 0:05:18.360 --> 0:05:21.760 we're crypto native Dexterity never traded equities is always traded crypto, 0:05:21.839 --> 0:05:23.800 and that's kind of what we were raised on, so 0:05:23.880 --> 0:05:25.719 to speak, over the course of our five year history. 0:05:26.160 --> 0:05:28.400 But as institutions have come in, they're bringing in the 0:05:28.440 --> 0:05:32.200 strategies they adopt in mainstream markets and equities markets in 0:05:32.240 --> 0:05:35.040 f X, so I think part of what we're seeing 0:05:35.240 --> 0:05:38.760 is that as equities Bitcoin drops and they kind of 0:05:38.920 --> 0:05:41.160 stick together. And it's because the same strategies are being 0:05:41.240 --> 0:05:44.799 enacted by a big players in the institutional world across 0:05:44.880 --> 0:05:48.479 both asset classes. I'm kind of fascinated with the idea 0:05:48.640 --> 0:05:52.240 of high frequency trading in crypto, Michael, because you know, 0:05:52.680 --> 0:05:56.080 you know, I'm an older gentleman, so shall we say, 0:05:56.080 --> 0:05:58.159 you know, I remember the old flash boys days in 0:05:58.200 --> 0:06:01.000 the backlash and sort of a lot of the focus 0:06:01.040 --> 0:06:07.080 of HFT in equities and traditional futures markets, uh, was 0:06:07.240 --> 0:06:09.960 on that idea of latency. You know, if you could 0:06:10.320 --> 0:06:13.760 co locate your machine right next to the matching engine 0:06:14.120 --> 0:06:16.800 at the exchange, you could be the first in and 0:06:16.839 --> 0:06:20.479 first out of every trade. I don't get the impression 0:06:20.520 --> 0:06:24.880 that that's at all factor and crypto at all. Correct 0:06:24.880 --> 0:06:27.039 me if I'm wrong. Maybe it is, but you know, 0:06:27.080 --> 0:06:30.760 I'm curious what sort of the traditional HFT strategies. What 0:06:30.880 --> 0:06:34.240 the kind of compare and contrast is between crypto h 0:06:34.320 --> 0:06:38.120 f T and that old school low latency you know, 0:06:38.600 --> 0:06:42.400 venue arbitrage type of h f T that was so 0:06:42.480 --> 0:06:45.960 famous in the flashboy days. Yeah, it was still kind 0:06:45.960 --> 0:06:48.080 of funny talking about crypto n h f T because 0:06:48.279 --> 0:06:52.719 the real flashboys HFT you're talking nanoseconds to microseconds latency, 0:06:52.800 --> 0:06:55.640 and in crypto you don't really get there, you know, 0:06:55.720 --> 0:06:58.680 the differences co location is the exception. Most of the 0:06:58.720 --> 0:07:01.480 major exchanges in the world are all in a WS 0:07:01.480 --> 0:07:03.080 so it's not like I can go buy a machine 0:07:03.160 --> 0:07:04.760 and put it right next to theirs and try to 0:07:04.760 --> 0:07:06.760 minimize the length of my cable down to one meter 0:07:06.880 --> 0:07:10.679 instead of two to be faster. So it's fundamentally different. 0:07:10.760 --> 0:07:13.080 And there's two types of latency to think about. There's 0:07:13.120 --> 0:07:16.520 internal and external. So external is that a w S 0:07:16.600 --> 0:07:18.400 layer I want to submit in order, I've got to 0:07:18.440 --> 0:07:20.360 send it through a bunch of machines across the world 0:07:20.360 --> 0:07:23.360 and try to hit the receiving exchanges exchange as fast 0:07:23.360 --> 0:07:26.480 as I can. Um that's something these days that's on 0:07:26.480 --> 0:07:29.440 the order of milliseconds, And that's true whether you're Citadel 0:07:29.520 --> 0:07:32.320 or whether you're Dexterity. And it's an interesting problem still 0:07:32.320 --> 0:07:35.720 as solved when you talk about all these institutions entering 0:07:36.280 --> 0:07:40.640 into the market, is how much of their strategies are 0:07:40.720 --> 0:07:43.120 are sort of HFT based as well? Is it is it? 0:07:43.240 --> 0:07:45.560 You know, are we really in a speed battle at 0:07:45.560 --> 0:07:49.119 this point among the big traders of the crypto industry? 0:07:50.320 --> 0:07:53.200 Not yet, but we're getting there and we can see 0:07:53.240 --> 0:07:56.840 it now, and part of it is exchanges themselves maturing. 0:07:57.040 --> 0:07:59.880 So we talked about latency, but it's also once I 0:08:00.040 --> 0:08:01.880 sent a trade to an exchange, how are they going 0:08:01.920 --> 0:08:04.679 to process it? And it's getting there first actually gonna 0:08:04.680 --> 0:08:08.440 matter now in traditional markets definitely, but with crypto exchanges 0:08:08.600 --> 0:08:10.880 there's this thing called jitter or is that this kind 0:08:10.920 --> 0:08:14.720 of moment as orders arrive, how fast do they process them? 0:08:14.720 --> 0:08:16.520 Do they queue them up properly? Do they do them 0:08:16.560 --> 0:08:19.920 first come, first serve? And in the past they really didn't, 0:08:20.240 --> 0:08:22.120 so whether I was a hundred milliseconds or a hundred 0:08:22.160 --> 0:08:24.000 and ten million sseconds to get my message out didn't 0:08:24.040 --> 0:08:26.920 matter much. They're improving, though, and this is going to 0:08:27.040 --> 0:08:29.640 enable guys like the Citadels and the Jumps to the 0:08:29.680 --> 0:08:33.480 world to get better. And it also means internal latency matters. 0:08:33.480 --> 0:08:36.120 Because you talk about being in the traditional close to 0:08:36.360 --> 0:08:38.960 the machine, that's not all that matters. It also matters 0:08:38.960 --> 0:08:41.760 how fast you process information you receive from an exchange 0:08:41.760 --> 0:08:43.800 and how fast you make a decision to send a 0:08:43.840 --> 0:08:46.520 message back out. And while we didn't think about that 0:08:46.559 --> 0:08:48.760 too much in the past because it just didn't matter 0:08:48.920 --> 0:08:50.560 with the big guys in, we have to think about 0:08:50.600 --> 0:08:52.320 that now we have to think about arctic to trade 0:08:52.360 --> 0:08:56.280 or internal latency. So we're at the beginnings of this 0:08:56.520 --> 0:08:59.440 kind of arms race to be faster, to be smarter, 0:09:00.160 --> 0:09:02.960 to really win. Yeah, And is there a risk that 0:09:03.080 --> 0:09:06.680 as more and more sophisticated players like this uh sort 0:09:06.720 --> 0:09:09.400 of dominate the volume in crypto? Is there any worry, 0:09:09.400 --> 0:09:12.200 any concerned that you might scare scare away the retail 0:09:12.400 --> 0:09:15.840 investors and traders And you know, do you really need 0:09:15.920 --> 0:09:19.240 them in the market to sort of optimize your your strategies, 0:09:19.320 --> 0:09:20.640 you know what I mean, Like, do you need that 0:09:21.160 --> 0:09:25.520 unsophisticated mom and pop trader to to kind of give 0:09:25.559 --> 0:09:29.640 you the best opportunities? Yeah? I think you know, the 0:09:29.760 --> 0:09:32.920 key about retail treaders is they're not price sensitive the 0:09:32.920 --> 0:09:36.640 way institutions are. So institutions will care about a single 0:09:36.679 --> 0:09:39.200 bit a hundred of a hundred will care about that, right, 0:09:39.600 --> 0:09:42.439 but an institution, but a retail treader, they're not bothered 0:09:42.480 --> 0:09:44.959 if they pay one penny or two pennies on top 0:09:45.000 --> 0:09:48.079 of ten dollars to get a trade done. Um, So 0:09:48.720 --> 0:09:51.120 when retail goes, it ends up being just a most 0:09:51.200 --> 0:09:55.240 institutional players scrapping over a tiny little sliver. So having 0:09:55.280 --> 0:09:57.920 retail of the market it's not great right now. But 0:09:58.360 --> 0:10:00.920 because crypto is so unique, because there's new products that 0:10:00.960 --> 0:10:04.439 people don't fully understand, because there's models that haven't been 0:10:04.440 --> 0:10:08.200 developed for decades, like indratify, there's lots of opportunity to 0:10:08.280 --> 0:10:12.760 kind of find alpha. Michael, can you talk a little 0:10:12.760 --> 0:10:15.920 bit more about the involvement of the retail investor because 0:10:16.040 --> 0:10:20.640 obviously we had them involved in when prices were going 0:10:20.720 --> 0:10:25.000 up and everything was great, and so this year really 0:10:25.280 --> 0:10:28.920 we've had the retail investor retreating. I'm wondering if you 0:10:28.960 --> 0:10:33.880 think the retail investor will be staging a comeback or 0:10:34.040 --> 0:10:36.600 if we need the retail investor to really be coming 0:10:36.640 --> 0:10:40.839 back for prices to start to recover. I think we 0:10:40.880 --> 0:10:42.840 do need retail to come back. And the truth is 0:10:43.640 --> 0:10:46.160 crypto is not just supposed to be another speculative asset. 0:10:46.200 --> 0:10:48.800 It's supposed to have cases, it's supposed to change the 0:10:48.800 --> 0:10:52.959 way finance works, and that ultimately relies on retail. Now, 0:10:53.000 --> 0:10:55.480 cryptos had this long journey of trying to find products fit. 0:10:56.000 --> 0:10:58.160 Really what does it matter to the everyday person to 0:10:58.160 --> 0:11:01.959 be using or smart contract or any of these things, 0:11:02.400 --> 0:11:04.960 and were still not there yet. So you know what 0:11:05.080 --> 0:11:07.640 really excited sparked the last bull run? I mean there 0:11:07.640 --> 0:11:09.360 were a number of factors, but a key factor was 0:11:09.400 --> 0:11:12.040 there was lots of cool new projects with unique applications 0:11:12.040 --> 0:11:14.440 that people wanted to try, many of them financial and 0:11:14.440 --> 0:11:19.000 many of them gaming, some things, other things. But without 0:11:19.040 --> 0:11:23.360 that excitement, it's just speculation. So without retail that's excited 0:11:23.400 --> 0:11:26.800 about product fit, it's not gonna be much fun. And 0:11:26.840 --> 0:11:29.360 what is it that would sort of help bring them 0:11:29.360 --> 0:11:32.040 back in? What would it be that we need to 0:11:32.080 --> 0:11:35.440 see maybe some development or something that you can imagine 0:11:35.480 --> 0:11:39.000 that would help them come back into the market. Right, 0:11:40.240 --> 0:11:44.560 FOMO is very important. I think I think I'll point 0:11:44.559 --> 0:11:47.040 to two major categories. You know, One is n f 0:11:47.080 --> 0:11:49.959 T S, which I'm a skeptic of everything. I was 0:11:49.960 --> 0:11:52.560 a skeptic a bit point from day one. UM, and 0:11:52.600 --> 0:11:54.280 so n f T is always kind of seemed fine 0:11:54.320 --> 0:11:56.640 to me. But there is some attraction there. Maybe it's 0:11:56.640 --> 0:11:58.600 because I'm from the last generation, but I don't like 0:11:58.640 --> 0:12:01.439 collecting things I can touch. It turns out a lot 0:12:01.440 --> 0:12:04.200 of younger people do, UM, so they might be value 0:12:04.200 --> 0:12:06.160 and n f T s there, especially if they're tied 0:12:06.200 --> 0:12:08.880 to access. You can get into this club, you have 0:12:09.000 --> 0:12:12.640 these rights. That's an interesting thing. UM. And the same 0:12:12.640 --> 0:12:15.920 with gaming. You know, we've seen loot boxes in traditional gaming, 0:12:16.040 --> 0:12:19.400 you know, buying player cards for FIFA or you know 0:12:19.600 --> 0:12:22.800 v bucks for Fortnite. Bringing that onto the blockchain has 0:12:22.880 --> 0:12:25.120 interesting applications, but it has to be done right, and 0:12:25.120 --> 0:12:27.320 it has to be away consumers can use. This is 0:12:27.320 --> 0:12:30.560 the key problem with crypto. It's a pain to use, 0:12:31.360 --> 0:12:34.160 and no one's really cracked that UI problem yet. I 0:12:34.200 --> 0:12:36.480 think once that's solved it gets much easier to be 0:12:36.480 --> 0:12:39.439 excited about it and retail come back. Well, let's talk 0:12:39.480 --> 0:12:43.360 about that UI issue, because I'm interested. You know, how 0:12:43.440 --> 0:12:50.680 you approach um this fragmented all over the world crypto industry. 0:12:50.720 --> 0:12:52.600 I mean, I don't even know what the latest count is. 0:12:52.679 --> 0:12:56.240 What is it like ten fifteen thousand different coins going around? 0:12:56.440 --> 0:12:58.880 You know? So does a firm like your yours you 0:12:58.960 --> 0:13:03.000 just focus on the the majors or are you dabbling 0:13:03.000 --> 0:13:05.280 out into the defy world? You know? How do you 0:13:05.600 --> 0:13:09.440 decide what the trade? Yeah, you know, our bread and 0:13:09.480 --> 0:13:12.240 butter as a high frequency trading firm is high volume. 0:13:12.880 --> 0:13:16.200 So obviously the highest volumes are immediately going to be BTCNA. 0:13:16.880 --> 0:13:19.760 Now what's the flavor of the week is a question 0:13:19.800 --> 0:13:22.600 were always asking because coin x, y Z might be 0:13:22.679 --> 0:13:24.960 having all kinds of volume for reasons that we don't 0:13:24.960 --> 0:13:27.240 really care about. Were in hf T shop, But it's 0:13:27.320 --> 0:13:29.640 very much data and data out. I've seen volume spike 0:13:29.720 --> 0:13:31.839 over there, I see numbers of my back tests that 0:13:31.880 --> 0:13:33.920 are promising. I'm going to go trade that. I don't 0:13:33.920 --> 0:13:36.400 really care what it is. So that's really what we 0:13:36.480 --> 0:13:39.280 succeed at. We look for high volume spikes and activity 0:13:39.360 --> 0:13:42.319 and go trade there as fast as we can. Um 0:13:42.400 --> 0:13:45.439 That being said, sometimes their opportunities and defy. Sometimes it's 0:13:45.480 --> 0:13:47.840 interesting signals coming from that part of the world, but 0:13:47.920 --> 0:13:51.440 it's not dexterities kind of center of excellence. Can you 0:13:51.520 --> 0:13:54.319 talk a little bit more about what specifically you guys do, 0:13:54.440 --> 0:13:56.520 because you and I have talked in the past about 0:13:56.520 --> 0:14:00.280 market neutral strategies, which we mentioned earlier in the show. 0:14:00.520 --> 0:14:03.200 So layout for us, what is that, what you guys 0:14:03.240 --> 0:14:06.880 are doing, what you're utilizing, what what a market neutral 0:14:06.880 --> 0:14:10.240 strategy really is, And then also tell us how you 0:14:10.240 --> 0:14:12.280 guys are holding up this year and how market neutral 0:14:12.280 --> 0:14:14.959 strategies are holding up this year. Yeah, and you have 0:14:15.040 --> 0:14:17.160 a high like kind of finance. One on one level 0:14:17.200 --> 0:14:20.120 of market neutral strategy is one where you're indifferent to 0:14:20.200 --> 0:14:23.640 the price direction of the assets you're trading. So Dexterity 0:14:23.680 --> 0:14:26.000 doesn't care put Point goes up or down in terms 0:14:26.040 --> 0:14:28.800 of its piano. What we care about is volatility and 0:14:28.880 --> 0:14:32.080 activity and pricing inefficiencies. That's what we really look for, 0:14:32.560 --> 0:14:35.120 and that's what makes us market neutral. And it's kind 0:14:35.120 --> 0:14:37.360 of a few flavored strategies that work like this. You've 0:14:37.400 --> 0:14:39.480 heard of the basis trade, maybe maybe you've heard of 0:14:39.480 --> 0:14:43.160 statistical arbitrage strategies or market making strategies. These are all 0:14:43.160 --> 0:14:46.360 strategies that generate alpha, but at the same time, the 0:14:46.400 --> 0:14:48.480 price of the underlying doesn't really matter to you whether 0:14:48.480 --> 0:14:51.160 it goes up or down, And the good thing about 0:14:51.160 --> 0:14:53.880 market neutral is that whether it's rain or shine, you're 0:14:53.880 --> 0:14:56.520 doing okay. You're printing money and things are going the 0:14:56.560 --> 0:15:00.240 right way. You have a very high sharp strategy. Um. 0:15:00.280 --> 0:15:02.640 The downside is when there's a bull run like there 0:15:02.680 --> 0:15:05.640 wasn't up till at the beginning of this year, Um, 0:15:05.760 --> 0:15:08.400 you're not getting those outsize asymmetric gains of somebody who 0:15:08.480 --> 0:15:12.240 just goes leopard long. The good news is when Celsius 0:15:12.240 --> 0:15:14.960 falls down and so does bitcoins price, you don't get 0:15:15.040 --> 0:15:18.080 hurt either. So that's our goal is to kind of 0:15:18.760 --> 0:15:22.640 be be ready for any market. Can you maybe give 0:15:22.720 --> 0:15:25.640 us an example of a strategy or a trade you 0:15:25.960 --> 0:15:29.960 have utilized recently and talk a little bit more specifically 0:15:29.960 --> 0:15:33.400 about what returns actually look like. If somebody is running 0:15:33.440 --> 0:15:36.240 a good market neutral strategy this year, what do those 0:15:36.400 --> 0:15:39.960 returns look like? Because obviously within crypto everything else has 0:15:40.000 --> 0:15:42.200 been just suffering so much. I think you know. The 0:15:42.240 --> 0:15:44.680 example I used for a typical stat our strategy is 0:15:44.720 --> 0:15:48.840 one inequities. Let's say you buy some uh Coca Cola stock, 0:15:49.400 --> 0:15:51.720 and you see your Coca Cola stock pops ten percent, 0:15:51.760 --> 0:15:54.200 but PEPSI doesn't. Now they're not the same thing coke 0:15:54.240 --> 0:15:56.360 and pepsi. But whatever is good for coke is probably 0:15:56.360 --> 0:15:58.720 good for pepsi. So maybe you sell all your coke, 0:15:58.960 --> 0:16:00.960 you spend that the proceeds it's to buy some pepsi, 0:16:01.080 --> 0:16:03.440 and you wait and if things go right, it also 0:16:03.480 --> 0:16:05.720 goes up ten. And now you've kind of made this 0:16:05.760 --> 0:16:08.800 stat art strategy where you've traded two things that aren't fungible, 0:16:09.200 --> 0:16:10.600 but it was a good signal that you're going to 0:16:10.680 --> 0:16:14.640 make money. It's a bit more sophisticated in that simple example. 0:16:14.640 --> 0:16:16.920 In the real world, and in crypto, you have a 0:16:16.920 --> 0:16:20.120 lot of different products that are margin in different assets. 0:16:20.240 --> 0:16:22.880 So the price of bitcoin in us D tether is 0:16:22.880 --> 0:16:24.440 going to be different than the price of bitcoin in 0:16:24.520 --> 0:16:27.360 us D. They're not fungible, they're not the same product, 0:16:27.440 --> 0:16:31.400 but they're highly correlated, so there might be opportunities there. Um. 0:16:31.400 --> 0:16:33.400 So that's a very simple example of stat art strategy 0:16:33.440 --> 0:16:36.400 that makes sense um in terms of returns. One of 0:16:36.400 --> 0:16:37.840 the problems of being a prop shop is a very 0:16:37.880 --> 0:16:41.200 defensive of what our returns are. UM. But I can 0:16:41.240 --> 0:16:44.880 tell you that if you're doing north, you're probably doing 0:16:44.880 --> 0:16:47.640 it right. But you can get better than that. Wow, 0:16:48.000 --> 0:16:58.240 North I'll take that in this market for sure. That's yeah, Mike. 0:16:58.280 --> 0:17:02.680 I'm curious how you see uh, the market structure in 0:17:02.760 --> 0:17:07.439 crypto evolving. You know, it strikes me as it's probably 0:17:07.480 --> 0:17:09.439 a tough time to be in exchange. You're tougher than 0:17:09.480 --> 0:17:12.440 it was. Volumes are low, prices are low. As you said, 0:17:12.440 --> 0:17:17.719 you're you're losing that retail uh interest. Um are we 0:17:17.800 --> 0:17:19.600 do for sort of a replay of what we saw 0:17:19.600 --> 0:17:21.320 in the equities market where there was a lot of 0:17:21.320 --> 0:17:26.000 consolidation of exchanges and a lot of sort of efforts 0:17:26.040 --> 0:17:30.240 to uh figure out ways to bring in more revenue 0:17:30.359 --> 0:17:34.040 for exchanges, either by selling data or you know, selling 0:17:34.080 --> 0:17:37.160 co location services that sort of thing. Obviously, as you said, 0:17:37.359 --> 0:17:39.919 you can't really co locate in the cloud. But you know, 0:17:40.080 --> 0:17:41.879 walk us through how you see the sort of the 0:17:41.920 --> 0:17:45.320 market structure and the big players evolving from here. Given 0:17:45.359 --> 0:17:48.359 this this sort of lackluster year we've had had in 0:17:48.400 --> 0:17:51.359 crypto um or the boom times over, you know, is 0:17:51.400 --> 0:17:54.640 it is it's sort of a time for belt tightening 0:17:54.640 --> 0:17:58.000 among the major players, and we could see you know, 0:17:58.480 --> 0:18:01.560 a different crypto market structure at the other end of this. 0:18:03.320 --> 0:18:05.679 You know, I think there's two major camps amongst the 0:18:05.680 --> 0:18:08.879 crypto exchanges right now. And keep in mind crypto emerged 0:18:08.880 --> 0:18:10.879 from a type of rebellion. There was a lack of 0:18:10.920 --> 0:18:14.760 trust and institutions people want to have. Didn't trust banks. 0:18:14.760 --> 0:18:17.399 They want to control their own assets, and so a 0:18:17.440 --> 0:18:19.840 lot of the guys who founded the big exchanges have 0:18:20.080 --> 0:18:25.159 that kind of mavericky kind of ideology. Um And you know, 0:18:25.200 --> 0:18:27.560 for Dexterity, the reason we started in crypto was because 0:18:27.560 --> 0:18:30.119 the barriers to entry much lower. I didn't have to 0:18:30.119 --> 0:18:32.479 pay a million dollars a month in data from twelve 0:18:32.480 --> 0:18:34.800 exchanges to get it going. I didn't have to pay 0:18:34.800 --> 0:18:36.960 for co location. I didn't have to buy a microwave tower, 0:18:37.520 --> 0:18:40.960 right And I think some founders of cryptic changes love that. 0:18:40.960 --> 0:18:42.920 That's what they want to see as a level playing field. 0:18:42.920 --> 0:18:44.439 But you can't buy your way in. You have to 0:18:44.480 --> 0:18:48.119 be smarter. And there's other exchanges that are saying the 0:18:48.160 --> 0:18:52.040 TRAFFI market descry five model makes sense, and that's exactly 0:18:52.040 --> 0:18:55.200 where we should go. So I think some exchanges dogmatically 0:18:55.200 --> 0:18:56.800 will say, no, we don't want to sell data, No 0:18:56.920 --> 0:18:58.680 we don't want to sell cola. That's not the world. 0:18:58.800 --> 0:19:01.119 We want the future to be and there are others 0:19:01.520 --> 0:19:03.560 that will say, yeah, this makes perfect sense, and I 0:19:03.600 --> 0:19:05.359 want to kind of limit all the small guys and 0:19:05.400 --> 0:19:07.800 have five major counterparties. Who are you know, the brand 0:19:07.880 --> 0:19:11.080 name h F T s and institutional traders in the world. Um, 0:19:11.080 --> 0:19:13.720 and that's what life should look like. It's hard to 0:19:13.760 --> 0:19:16.240 say who's gonna win. The pessimist Simmy says attracted by guys, 0:19:17.000 --> 0:19:20.000 But as someone who came as an outsider into crypto 0:19:20.080 --> 0:19:22.440 and into finance, I really hope it's the guys who 0:19:22.440 --> 0:19:24.399 are more altruistic and want to see a different financial 0:19:24.440 --> 0:19:27.280 world going forward. Can you talk a bit more about 0:19:27.280 --> 0:19:29.919 the state of play for exchanges right now, because if 0:19:29.960 --> 0:19:34.280 we have people trading less, if if volumes are much lower, 0:19:34.320 --> 0:19:37.520 what does that mean, what does it mean for exchanges 0:19:37.560 --> 0:19:40.119 and can they still continue to make money in this 0:19:40.240 --> 0:19:43.080 environment a fewer people are trading? You know? I think 0:19:43.080 --> 0:19:45.040 what the interesting thing about criptual exchanges is you know 0:19:45.119 --> 0:19:47.320 exactly how much money they're making because their fees are 0:19:47.320 --> 0:19:49.760 public and their volumes are public, and it's not a 0:19:49.760 --> 0:19:52.479 black box. Um. They are the exchange and broker combined. 0:19:52.680 --> 0:19:54.840 So at a minimum, you know what their basic exchange 0:19:54.840 --> 0:19:56.280 fees are and then they have lots of other things 0:19:56.320 --> 0:19:58.080 going on the side, O, t C, d C, what 0:19:58.160 --> 0:20:01.240 have you. Um, the kind of big leading exchanges, they're 0:20:01.280 --> 0:20:04.280 still doing great. I'm not really worried about them. It's 0:20:04.320 --> 0:20:05.960 as you go into those two two and tier three 0:20:05.960 --> 0:20:09.040 exchanges you have to wonder what's going to happen. UM. Now, 0:20:09.080 --> 0:20:12.760 for them, exit kind of can make sense, but only 0:20:12.960 --> 0:20:14.879 if it's the right kind of exit. Now for a 0:20:14.880 --> 0:20:18.680 big exchange, you know, flow comes organically. It's very easy 0:20:18.720 --> 0:20:21.360 for me to trade from Exchange A. Could drop Exchange 0:20:21.359 --> 0:20:23.760 A and start trading on Exchange B. So there's no 0:20:23.800 --> 0:20:26.200 point in buying exchange being necessarily unless they have a 0:20:26.280 --> 0:20:29.480 unique geographical positioning where they've got a user base that 0:20:29.520 --> 0:20:32.160 the big exchanges don't have. So I do expect big 0:20:32.160 --> 0:20:35.840