Options and Algos: The State of Play in the Crypto Market

1/ Darius Sit @dariussitzl, Founder & CIO of QCP @qcpcapital, discussed the state of play in the crypto market with John Lagman from @Bloomberg at REDeFiNE TOMORROW 2024, SCB 10X's 5th annual global DeFi & Web3 virtual summit.

2/ The spot ETF for Bitcoin in the US has been a game changer, resulting in additional participation from US and global players. It has validated crypto as an asset class, with institutions like Millennium and pension funds taking large positions.

3/ The momentum for institutional adoption is strong, and the price reflects what's expected to happen in the next 5-10 years, where Bitcoin, Ethereum, and other crypto assets are treated like equities.

4/ Banks are now trying to catch up and offer their usual suite of structured products for crypto, similar to what they offer for FX, commodities, and equities. In 5 years, any derivative traded on Apple stock will likely be offered on Bitcoin and Ethereum.

5/ These structured products are useful for investors as they package market opportunities. The underlying crypto assets offer high risk-free interest rates and implied volatility, allowing for immense creativity in product innovation.

6/ High net worth individuals have been the typical buyers of these structured products. Crypto natives have been slower to adopt them due to speculative opportunities in the native space.

7/ The lines between CeFi and DeFi plays are blurring, with protocols like Ethena @ethena_labs using a CeFi-type play but distributing via DeFi. The fundamentals of generating returns from crypto are similar to traditional finance.

8/ The spot ETF has made Bitcoin and crypto effectively a US asset, entering the macro sphere and correlating with the S&P 500. Crypto is now used as a proxy for US markets on weekends.

9/ QCP has opened an office in Abu Dhabi to expand in the Middle East and globally, recognizing that crypto will be part of capital markets, not a distinct carve-out. They aim to have fungibility between physical and ETF markets.

10/ Darius believes Ethereum and other assets will eventually be listed in US ETFs. Institutional participation will keep increasing globally, with banks getting more involved over time.

11/ The collision of DeFi and CeFi is an interesting development, with the CeDeFi narrative gaining traction. Meme coins have also taken off as a cultural aspect of the space.

12/ QCP has been incubating a buy-side capability called Primrose Capital Management, a fund management company bringing quant systematic trading to crypto. They've been building a research platform with data scientists and quant analysts.

13/ Primrose Capital takes a barbell approach, with a research platform for systematic directional strategies on one side and institutionally native strategies like validated note running and airdrop farming on the other.

14/ Setting up Primrose Capital required more patience and infrastructure compared to QCP, with a need for data scientists, quant analysts, and consolidated systems. It's an ongoing project that requires continuous development and adaptation.

15/ Data quality in crypto is different from traditional finance, with multiple sources of truth from native exchanges. Data scientists are crucial for consolidating decentralized data into a single source of price data to run models.

16/ Darius feels like it's a fresh start this year, with the spot ETFs ushering in a new paradigm and phase in the market. There's a lot of value in the creation of new enterprises and ideas at the fault lines between different spaces.

17/ Even simple things like the creation of a new credit or rates market in crypto are key elements for the space to grow. For those feeling like it's too late to enter the space, Darius disagrees, believing there are many new things to be built in the exciting years ahead.