Bitcoin, the asset class, received some heavyweight hedge fund validation last week when a regulatory filing revealed New York-based Renaissance Technologies is considering including cash-settled bitcoin futures among the instruments it trades.
Renaissance, arguably the world’s most secretive and successful money manager, did not respond to requests for comment.
Still, it’s interesting to hear how trading experts think a firm like Renaissance might approach bitcoin as an underlying asset, given the hedge fund’s reputation for using mind-bending math to identify patterns and anomalies across a universe of assets.
Prize-winning mathematician James Simons began Renaissance Technologies (originally called Monemetrics) in a Long Island strip mall in 1978. Renaissance is now famous for pioneering data science and machine learning before these disciplines went mainstream, and has been described as having the best physics and mathematics department in the world.
Highlighting the complexity of the fund’s approach, Max Boonen, the founder of digital assets trading platform B2C2, referred to a famous quote attributed to former Renaissance chief Robert Mercer, who said the firm was unable to make sense of some of its most profitable trading signals.
“Renaissance can make predictions based on pure time-series data and they don’t necessarily have to have a strong economic rationale for why a signal works or doesn’t work,” said Boonen. “In fact, such an approach might be quite appropriate for Bitcoin at the stage that it is. Because it’s sometimes very difficult to make sense of the moves in the Bitcoin market.”
Richard Craib, the founder of Numerai, a hedge fund built by a crowdsourced network of data scientists, says he has come across young startups that are using artificial intelligence to get an edge looking at on-chain transactions, or mining…