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What cryptohedge funds are for…

October 27, 2017

Just pointing out what cryptohedge funds are for….

  1. First of all, there are a lot of rich people that just can’t be bothered.  Yes you and I can just go on poloniex and bittrex and buy and sell crypto.  But you and I also drive our own cars, mow our own lawns, cook our own food, and do our own laundry.  If you are a rich person, you have money so you will be spending your time on the yacht and eating at fancy restaurants.  You want someone else to cut the grass, and that’s where hedge funds come in.  Also with this sort of hedge fund, you don’t even ever often get to talk to the rich person.  You talk with the rich person’s head butler, and he makes your life miserable.  So for example, if you have a fund that just buys bitcoin, they’ll demand daily reports and charts.  The fact that these is sort of stupid since they can just read up the numbers online doesn’t matter.  If you are running a hotel, and the rich person what’s you to dress up in a chicken suit and do a polka. you do it.
  2. There are some trading stuff that you can do to make money.  Buy low/sell high.  Market making and short term trading.  This type of work is like being a hammer salesman.  You have a buyer and a seller, except that the buyer and the seller aren’t there at the same time, and so you buy and sell and collect a fee.
  3. Finally crypto is not just about crypto.  Eventually everything will be tokenized and the infrastructure you use to buy and sell crypto-currencies will be used to buy and sell Apple stock.

The reason that crypto-hedge funds are important is that they have no legacy.  For two years previous I’ve been trying unsuccessfully to get hedge funds to invest in back end technology.  Suppose you have a hedge fund that does everything by paper (i.e. most of them).  You literally have to hire someone to print out paper copies of brokerage statements and compare them with paper copies of your Excel spreadsheet, and if something goes wrong, you have to spend several hours on the phone with a broker, who is looking at their paper copy of your accounts.

This is insane.  The trouble is that you don’t have the money to get rid of this system and move to something that is all digital.  Everything works, and you aren’t making that much money, and so you can justify rebuilding everything from the ground up.

But with cryptocurrencies you can do all digital.  Since you are going to be building everything from scratch, you don’t use paper.  You don’t ask bittrex or poloniex for a paper statement because they wouldn’t be issuing one anyway.  You write exchange connectors that just download their data.  Now if you want to trade Apple stock, you still have to go to paper, but that will only be the case until next year.

 

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