
AI and Bitcoin are driving the next big hedge fund wave - oska
https://www.wired.com/2017/02/bots-crowds-bitcoin-driving-next-hedge-fund-wave/
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M_Grey
My terse and cynical reaction is, "Good luck with that." Of course, some
people will become very rich, but just flipping coins gives you a bell curve.

~~~
sAbakumoff
It reminded me of "thinking fast and slow" book where the author refers to the
study conducted by Terry Odean and Brad Barber:

"In a paper titled “Trading Is Hazardous to Your Wealth,” they showed that, on
average, the most active traders had the poorest results, while the investors
who traded the least earned the highest returns. In another paper, titled
“Boys Will Be Boys,” they showed that men acted on their useless ideas
significantly more often than women, and that as a result women achieved
better investment results than men."

and concludes:

"It is important to remember that this is a statement about averages: some
individuals did much better, others did much worse. However, it is clear that
for the large majority of individual investors, taking a shower and doing
nothing would have been a better policy than implementing the ideas that came
to their minds."

Kahneman, Daniel (2011-11-03). Thinking, Fast and Slow (p. 214). Penguin Books
Ltd. Kindle Edition.

~~~
Ntrails
As a small personal trader you're probably paying a non trivial amount in bp
space for each move in and out of a position (whilst competing with companies
which don't).

The _average_ actively trading investor will inevitably lose money vs the
underlying benchmark index(es) that represent their portfolio.

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juskrey
There are no cheap options on Bitcoin. There is no short selling of expensive
options even if they exist. Every time I see hedging with Bitcoin in the same
sentence, I smell fraud.

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pmorici
Not mentioned in the OP but there was also news out today that hedge funds are
buying up Mt.Gox creditor claims.

[https://www.cryptocoinsnews.com/report-hedge-funds-buying-
cu...](https://www.cryptocoinsnews.com/report-hedge-funds-buying-customer-
claims-mt-gox-bitcoin-payout/)

~~~
patio11
That's an interesting trade. If you entirely ignore the Bitcoin aspect of it,
you're just investing claims against a bankrupt Japanese company which is
being competently administered in the ordinary course of a 民事再生。 Currently 100
yen worth of claims looks like it will receive 25 yen worth of satisfaction at
a non-deterministic time between one and two years from now. But, but, but:
something like 20 of those 25 yen are presently tied up in a non-liquid-but-
very-volatile[+] security, so buying bankruptcy claims gets you effective 2:1
leverage on that security. (Handwavy assumptions: you're sure of getting the 5
yen back that is actually presently held in yen and you can borrow yen for
approximately 0% in quantity, so essentially you're paying 10 yen for 20 yen
worth of exposure to the security.)

[+] Yes, you can sell 1 BTC without meaningful price impact, but you can't
sell 200k BTC without meaningful price impact, so it is not liquid by the
standards of hedge funds.

~~~
Animats
That's just some bottom feeder buying up claims at a discount. There's a small
industry which does that.[1] Sometimes the goal is to buy the business at a
big discount and do something with the assets.

[1] [https://www.law360.com/articles/498711/understanding-the-
rea...](https://www.law360.com/articles/498711/understanding-the-reasons-
traders-buy-bankruptcy-claims)

~~~
patio11
That was my first thought but, crucially, the bankruptcy administrator is
_not_ holding a pile of yen. If he were merely holding a pile of yen, this is
a pretty boring deal, and you'd be right -- it's a straightforward swap of
liquid cash for illiquid cash with an embedded premium for legal risk.

But the bankrupt entity holds 200k odd Bitcoins, and that changes things _a
lot_. I wouldn't make this trade even at an 85% discount to face value,
because I think there's a significant likelihood that BTC goes to zero, and so
would not buy it and especially would not buy it with embedded leverage.

~~~
herendin2
I assume you mean that you think there's a significant likelihood that BTC
goes to zero before the BTC are returned to the creditors, right?

~~~
patio11
Subtly different: I think there exists a likelihood that BTC goes to zero
before the BTC are sold. (BTC will not be returned to creditors directly, I
predict with a fairly high degree of confidence. They'll be sold as a block;
Kraken might be separately engaged to transfer money to foreign creditors who
might take their transfers in BTC.)

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deepnotderp
When the article has "ai" AND "bitcoin" in its title, AND it's from wired, you
know you're screwed.....

~~~
kordless
Actually, there's something to this I've been thinking about for a while...

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alecco
Indeed this is happening. Pricing out the 250k+/yr quants as the field is
levelled.

I'm surprised the hedge funds didn't figure out earlier that having everything
proprietary would drive their costs so high. When there are so many players
looking for alpha the only variable to control is costs.

~~~
jonbarker
Can't the same quants go make more money helping to train the bots?

~~~
kneel
Training bots is now for suckers.

It's all about training bots to train bots. Choo choo

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65827
This article contains so much misinformation and silly inaccurate hype that
it's almost painful to read for those of us in this space. I mean even for
Wired.

~~~
egocodedinsol
This could be interesting, but without pointing out what's wrong, or knowing
your experience it reads like a vague military dismissal of an intelligence
leak.

What's wrong with the article? This is not a dispute but a request for more
information.

~~~
pen2l
(With hesitance, that I'm just piling on the negatives: I actually tend to
ignore people who say things in an authoritative way but make no effort to
substantiate their claims, because more often than not they're just wrong. I
would assume likewise here).

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zekevermillion
Hopefully not together in the same investment!

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Animats
AI, probably. Bitcoin, probably not.

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kchoudhu
I know HN frowns on this kind of comment, but: suuuuuuure.

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zump
Numerai is generating an unprecedented amount of hype articles.

~~~
bear330
Exactly, I played Numerai many months, now it is full of cheating robots.

~~~
akvadrako
How does that make sense? In an AI competition you expect robots to compete to
the best of their ability.

~~~
daveguy
The bots are used to scrape data from the leaderboard and make adjustments to
improve their score by overfitting the public leaderboard data.

Essentially this:

[http://blog.mrtz.org/2015/03/09/competition.html](http://blog.mrtz.org/2015/03/09/competition.html)

You might say: but that won't change who actually wins on the private board.
However when you use techniques like that you can get identify data in the
test set and use it for training. It does help a some, but not a lot. The
payout isn't very large for the over fitters (maybe 10-20% of payout).

Another negative is regular competitors also have no idea how they are
actually doing compared to others. The leaderboard has impossible (for market
data) logloss values of 0.2 - 0.4, sometimes even 0.00. They keep trying to
fix it, but they haven't in about 2 months.

In this case, bots are automated cheating.

