Renaissance Technologies’ flagship hedge fund Medallion has dipped its toes into the wild world of cryptocurrency buying and selling, in an indication that the computer-driven funding group is prepared to play in additional esoteric markets to generate its industry-leading returns.
The $75bn hedge fund group disclosed in a regulatory filing that Medallion — a extremely profitable fund solely open to Renaissance’s personal staff — was dabbling in bitcoin, the unique cryptocurrency.
Whereas Renaissance stated that it might restrict its buying and selling actions to cash-settled bitcoin futures traded on the CME, the Lengthy Island-based funding group based by former Chilly Conflict codebreaker Jim Simons pressured the dangers of the nascent asset class.
“The underlying commodity for these futures transactions, bitcoin, is a comparatively new and extremely speculative asset,” Renaissance stated within the submitting. “Bitcoin and futures primarily based on bitcoin are extraordinarily risky, and funding outcomes could differ considerably over time.”
From the filing it isn’t clear how lively Renaissance is in bitcoin, or whether or not it has purchased any of the cryptocurrency futures, solely that it’s now “permitted to enter into bitcoin futures transactions”, based on a separate part on the dangers and buying and selling types of its varied funds. Its different funds, which handle cash for exterior traders, make no point out of bitcoin. A spokesman for the hedge fund declined to remark.
Cryptocurrencies like bitcoin stay on the fringes of the mainstream finance {industry}, however hungry for brand spanking new doubtlessly worthwhile belongings to commerce, Wall Avenue has been step by step bringing them into the fold.
Huge buying and selling corporations like DRW are actually making markets in cryptocurrencies, and even conventional funding teams like Constancy have launched “digital asset” companies. The CME’s bitcoin futures contract launch in 2017 was a significant second, by permitting extra mainstream traders — equivalent to Renaissance — to wager on or in opposition to bitcoin for the primary time.
However it’s a controversial improvement. The Securities and Change Fee has refused to approve alternate traded funds for the cryptocurrency, and plenty of within the finance {industry} contemplate it a rip-off and vulnerable to manipulation.
Chicago-based Cboe World Markets, CME’s crosstown rival and the primary US by-product alternate to supply bitcoin futures, unexpectedly pulled the plug on the fledgling market final yr as demand for the product wavered.
Additionally it is phenomenally risky. The worth of bitcoin soared from beneath $1,000 at the beginning of 2017 to a peak of practically $20,000 in December that yr, earlier than all of a sudden collapsing. Since 2018 it has seesawed between $3,000 and $12,000.
Renaissance listed a spread of dangers concerned in buying and selling the cryptocurrency, equivalent to its restricted historical past, volatility, the dearth of any official recognition as a forex, restricted regulation, the potential of elevated authorities scrutiny and its “susceptibility to manipulation by malicious actors”.
“Any of those elements might materially and adversely have an effect on the worth of the fund’s investments,” the submitting said.
The Medallion fund is on observe for its greatest yr, the Wall Street Journal reported on Friday, regardless of a risky market that has affected Renaissance’s different funds, which have posted a few of their worst quarters ever.
The Renaissance Institutional Equities Fund has managed to claw again a few of its earlier losses, gaining 4.eight per cent within the first two weeks of April to cut back its loss this yr to 10.Three per cent, whereas Renaissance Institutional Diversified Alpha is near flat for the month and down 10.Four per cent for the yr, based on individuals acquainted with the matter. Renaissance Institutional Diversified World Equities Fund was up 1 per cent within the first two weeks of April, paring its 2020 loss to 9 per cent.
Renaissance additionally revealed within the submitting that it was final yr fined €150,000 by the Spanish securities regulator for breaching a short-selling ban on Liberbank in 2017, a call that the hedge fund group is now interesting within the Spanish excessive courtroom.
“Though Renaissance had not engaged in a brief sale, the (regulator) decided that Renaissance’s discount of lengthy positions violated the brief sale ban as a result of it resulted in a rise within the internet brief place in Liberbank held by the funds Renaissance manages,” the submitting stated.
Nonetheless the funding group believes that the regulator and the Spanish Ministry of Financial system and Enterprise have “improperly broadened the scope of the Spanish regulation past its intent and plain language”, on condition that Renaissance didn’t enter any short-selling transactions after the ban was put in place, the submitting said.
