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Anthony Pompliano, founder and partner of Morgan Creek Digital Assets, and Travis Kling, founder and CIO of Ikigai Asset Management, sat down for a long conversation about the state of the cryptographic ecosystem . These concern the token structures, the network effect, the price movements and the way in which BitMEX, a cryptocurrency derivatives trading platform, can influence the market, presumably favoring the "quant-on-quant" crime. ".
Kling, a former long / short energy equity analyst at Magnetar Capital, which managed $ 4.6 billion of assets, subsequently managed a $ 200 million long book for Wall Street Point72, founded by hedge fund billionaire Steve Cohen. He left Point72 in December 2017 to launch the cryptographic fund based on LA, Ikigai Asset Management.
In this conversation with Pompliano, Kling breaks down because he believes that BitMEX provides the "worst kind of liquidity" for encrypted markets and because derivatives that allow jaw-dropping amounts of leverage are harmful to space.
Seriously one of the best podcasts I've heard in months. If you are a retailer you can not ignore this episode. Thanks @APompliano and @Travis_Kling ! https://t.co/RQphgJ7ZbG
– 🌕 Noom (@cryptonoom) 22 September 2018
Excerpt
Travis: Now you can go very short on Ripple, Tron, Bitcoin Cash, EOS, Cardano , and with variations up to 20X on some of them, 50X on others. And quantitatively, an announcement on BitMEX has been the kiss of death to date.
Pomp: So I was going to ask you, what do you think I'm doing at the market?
Travis: what happened is, a place has been given for now to have a real discovery of prices, bidirectional price discovery.
Pomp: Because previously you could only go for a long time.
Travis: Well, you may have run out of BitMEX, but you did not have enough liquidity. And now, there's a lot of liquidity on BitMEX right now, so you can really express it. Except – I'm glad you raised this argument – it's the worst kind of liquidity.
Pomp: Why?
Travis: Because it's liquidity, except that there are extremely sophisticated quantitative investors, guys on Wall Street, like … [19659015] Pomp: Like your old world.
Travis: Yes, yes. Not specifically Point72, but –
Pomp: Those kinds of people.
Travis: Like those kinds of people, right. The best of business, from a quantitative perspective. I do not want to name names. One of them rhymes with "lump". The other rhymes with "BE raw". So these guys are making a liquidity model on BitMEX. And the way it works is that they call the network three times a second, and by calling a network, they are pulling down very minute volume data. And then, I'm not 100% sure, but I think they do, they can see where the price is being made, compared to the specific volume at that time, compared to the offer. I think they can support the amount of leverage that has been put on that specific trade at that specific time, three times per second.
Pomp: Wow.
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Travis: And I can map where the stops are. And then you can map it, and then they see where a bunch of stops begin to pile up on top of each other.
Pomp: Foot on the gas.
Travis: Exactly, and it's just like a Jenga game, except these really sophisticated quants are the only ones that can see the Jenga tower. Everyone thinks it's like, "Oh, no block has yet been pulled out", but they see it all. And then, when they see all those stops that could potentially be rejected, then all they have to do is go and give a little jolt to the Jenga tower, and then go through all those stops. And so, if you look at price action in the last few months, it's so obvious that this is the structure of the market that's going on.
Pomp: And this is when you see it. If you're a retail investor, you're seeing an immediate – in a few seconds – 400 price jumps, right?
Travis: Right.
Pomp: Because you're basically reversing it.
Travis: Yes. Right. And all are stopped. And then BitMEX also works perfectly, until you really need it to work, and then it does not work anymore, because it goes off because there are too many people trying to trade. And then all these stops run out, and then the really smart guys take all the money from the retailers.
So it's terrible for the long-term health of the ecosystem, which is why I wanted to talk about it today. Do you know those creepers that wrap around the tree and kill the tree if you let the vine sit there long enough? This is exactly the kind of things that are happening right now. And so it really is at the expense of the long-term health of the ecosystem. I guess it's not sustainable in the medium term and that something will happen. I do not know what will happen.
Pomp: But is it more a regulatory solution? Or is it just that more people arrive in space that are intelligent, and then they all begin to commodify something of this, and then you get some relief?
Travis: Well, the way I think is, if the quant is the bully, and the retail guy is like the little kid at school, every day the little baby is going to school and gets punched in the gut from the bully, and the lunch money is stolen from him. After a while, stop going that way, right? And that's exactly what will happen. They are just about to cancel all the retail money. It will only be a quantum crime, which I think is how … everything is happening in traditional business classes.
Quantum-quantum crime has been underway for a decade in traditional asset classes. And so this is a problem. The other thing I want to talk about is the creation of Asian algorithms, which is the other 800-pound gorilla, which is also the vine that is wrapped around the tree that will kill the tree if you let it go on.
Pomp: So let's start with what it is?
Travis: Yes. So I do not mind –
Pomp: We take names.
Travis: Let's see here. This rhymes with "left him free". Yes, here it is.
Pomp: So there are a couple, right?
Travis: There are about 10 big boys. And they do not sit in the United States. They are not citizens of the United States. Their commercial activities are not domiciled in the United States. So I'm out of the long arm of the reach, the long range of US regulators.
Pomp: They have protections.
Travis: Which means you can really do whatever you want. And it's not illegal. We call him … can I swear on this?
Pomp: Yes, of course.
Travis: We call him fucking because it's not illegal. He's fucked.
Pomp: And fuckery is a combination of manipulation, and –
Travis: Morally it's stuff you would not want to do. And morality is a cultural thing. So I'm not trying to … look, they have a different set of cultural values than me, and if I were a Chinese boy who lived in China for all my life, and I could start printing money that way, I could do it me too. I do not know.
Pomp: You could see it as it is, "Hey, I'm giving you back." You guys have been playing around with us for decades. "
Travis: Anything, right? Yes. This is what is happening.
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