(Bloomberg) -- Mitchell Dong spied an opportunity late last year: Spot-Bitcoin ETFs were coming to US investors soon, and he wanted his crypto hedge fund to offer a competing product that performed even better.
Just weeks before Bitcoin funds got regulatory approval to start trading in January, his Pythagoras Investment Management launched its Alpha Long Biased strategy, a vehicle that looks to outperform the original cryptocurrency. It’s been nearly a year since the launch and the fund has beaten Bitcoin every single month except two, with year-to-date gains of around 230%, or 206% after fees.
“How can you beat the return of Bitcoin?” said Dong, chief executive officer of Pythagoras. “It continues to pleasantly surprise me on the upside.”
It’s a considerable return, even in crypto terms. Bitcoin is up about 133% this year, an advance that’s taken it to a record near $100,000. Amid the run higher, any number of tokens within the digital-asset market have soared. And some observers say the best of times are yet to come for the crypto space. Sky-high Bitcoin price targets are back in vogue as Donald Trump’s return to the White House is expected to usher in friendlier regulators and further unleash the animal spirits of risk taking.
Pythagoras’s Bitcoin-beating fund holds about $5 million in assets, making it the smallest of four strategies that Dong runs at his company, which manages roughly $130 million. The other three funds don’t boast the same types of spectacular returns: They are up anywhere between 13% and 34% so far this year.
The Alpha Long Biased strategy has a few components. First, there is a one-third core holding of Bitcoin itself. Another third is in a trend-following strategy which goes as much as two times long when crypto markets are rallying, and vice-versa on the downside. The rest is a long-short strategy that’s market-neutral, beta-neutral and dollar-neutral.
Dong likens the last part to a statistical arbitrage trade in equities that goes long 100 tokens and short another 100. His firm uses a machine-learning method to rank the relative predicted performance of 300 tokens, and then puts the top ones in the long basket and the bottom ones in the short basket. Pythagoras applies a 30% fee on returns that are in excess of Bitcoin’s.
“When Bitcoin goes up, it will go up more, and when it goes down, it will go down less,” Dong said of the fund. “We knew that we could do better than just buying Bitcoin.”
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