Exclusive: Crypto Hedge Fund Says No to More Money (For Now) After Banner 2021

Market-neutral crypto hedge fund firm Dunamis Trading Group has taken a time out from accepting new capital as the Brazilian asset manager retools its approach to trading after a banner year. 

Dunamis now oversees $210 million of assets under management — dwarfing the $20 to $30 million the operation had on hand to start 2021.

Managing Partner Delfos Machado Neto told Blockworks the team decided to temporarily close to new money in the fourth quarter in order to put the finishing touches on a yearlong overhaul of the firm’s infrastructure and trading systems. 

It’s an effort to keep up with a trading industry that has “grown up a lot,” in the last year and a half, Machado Neto said — especially when it comes to the rise of decentralized finance (DeFi.) 

Indeed, Dunamis is one of a growing number of institutional crypto investors looking for new sources of alpha for their ballooning piles of cash. The median assets under management for crypto hedge funds was $15 million in 2020, according to the latest PriceWaterHouseCoopers data available — an increase from just $3.8 million the year before. 

“Essentially, it’s like there’s a huge increase of what we can trade nowadays,” Machado Neto said.

“If you would have asked me, in 2019, ‘You want to trade Solana?’ It was like a couple dollars back then, so it wasn’t something that was really on the radar that we would be trading. Sushi, Matic, Cardano — all of these things have really come to the forefront of activity, that plus DeFi (generally), we needed to revamp it, spend some time rethinking and redoing it.”

The São Paulo firm’s limited-partners have bought into the revamp, judging from their commitments to invest tens of millions of dollars more at the next opportunity. Those investments will range from network connectivity upgrades to updating feed handlers that interact with exchanges.

Investors have already committed capital for the March or April reopening that would boost assets from $210 million to $250 million, and the firm estimates another $50 million of commitments will roll in next month.

It doesn’t hurt that the strategy gained an estimated, unaudited 77% net of fees last year. Its returns were fueled in part by snapping up open interest on Bitcoin and Ethereum derivatives and leveraging up those holdings. It also engages in market-making functions. 

Dunamis started trading in 2017 with proprietary capital, when the main option was spot trading Bitcoin and later Ethereum. Enter the overhaul: giving the firm the capability to trade 30 to 40 coins on a corresponding number of exchanges. It’ll allow the firm to more closely key in on what Machado Neto sees as big opportunities this year: DeFi, crypto structured products and options on volatility trading. 

Before starting the firm, Machado Neto spent almost six years with HSBC, where he served as the head of equity trading. Another managing partner, Alexandre Thorpe, who is the firm’s chief operating officer and chief risk officer, also previously worked for HSBC — as did managing partner and chief technology officer Alexandre Pereira.

The firm has grown from little more than a dozen employees at the end of 2020 to more than 40 now. 

“We were like 15 people,” he said. “We used to sublet a space, and we have a full floor in a nice building now. We’re an example of crypto growing up.”

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