What I Learned Managing a Crypto Fund for Five Years

I’ve been running a crypto fund for 1,825 days.

Arca just achieved a major milestone, reaching a five-year track record of managing outside capital in our liquid hedge fund.

Five years in any other industry may not seem like a long timeframe, but in crypto we often joke that one crypto year is equivalent to five normal years, and with 24/7 trading hours, it’s not untrue. During these past five years, I have seen many of our peers come and go, leaving a bit of survivorship bias as it pertains to crypto asset management.

Jeff Dorman, a CoinDesk columnist, is chief investment officer at Arca where he leads the investment committee and is responsible for portfolio sizing and risk management. He has more than 20 years of trading and asset management experience at firms including Merrill Lynch and Citadel Securities.

As chief investment officer overseeing this fund, as well as three others under the Arca umbrellas, I experienced first-hand the evolution of this industry, through good times, bad times and constant innovation. The five-year anniversary provided a natural timestamp to reflect upon what I learned about managing money, and about the industry.

Here are five of the most important takeaways from managing a crypto portfolio for the last five years.

In short: Investing in these markets is very challenging.

Tweak assumptions and risk models

This perhaps goes without saying to any person who has invested in this market, but this is not an easy asset class to invest in. For starters, the frequent booms and busts creates a false sense of liquidity and an oft-inaccurate depiction of expected beta and returns. All risk models, expected loss provisions, and sizing parameters are based on historical data and correlations, which change incredibly quickly. There is a reason why most funds in this space are early stage venture funds, where many of these real-time market related issues are not relevant. For those (like ourselves) who manage liquid funds, it is a constant game of tweaking assumptions and risk models.

Interpretation over speed

Contrary to popular belief, just because crypto markets trade 24/7 globally does not necessitate 24/7 trading coverage. Overtrading every tick is costly in any asset class, and the additional hours of crypto trading often try to lure you into more activity. But…