Mitchell Dong is a serial entrepreneur and savvy steward for investors. He is the CEO of Pythagoras Investment Management, a hedge fund which trades cryptocurrencies. An astute investor and pioneer in the Bitcoin industry, Mitchell participated in a Crypto Virtual Symposium sponsored by With Intelligence.
The panellists discussed the risk, reward and building confidence within the Crypto Market Infrastructure. The panel addressed the need to greater education surrounding cryptocurrencies, as well as promising developments in the wider cryptocurrency and blockchain ecosystem which could help support confidence in investments.
Read excerpts of Mitchell’s interview below.
When you look at recent events (e.g. Terra Luna Meltdown, Three Arrows Capital) which have shaken the market confidence in the market, should we be looking to have more surveillance in the sector and transparencies to avoid these sorts of crisis?
“A good hedge fund, a good trader, in this market has to think about survival first and have a very good risk management and even good defence. If you look at the financial markets, we have had dozens of blow ups. When I ran my first hedge fund, it was long term Capital Management in ’98 which blew up. Although Enron was not a hedge fund, they were certainly a large financial player that blew up in the energy markets. The key to lasting is a good risk management and good defence. In our 8 year track record, we have been to three bare markets or crytpo winters. The key is surviving and secondly thriving and making money is the result of various crisis.”
Redirecting the question to Mitchell, what does the baseline due diligence look like from your standpoint? What are the minimum requirements that you need to have satisfied before you make an allocation?
“I do the simple common sense stuff first and then then dig deeper into the nuanced stuff. The simple common sense stuff, for example D5 or even centralized exchange, you look at the quality of the management, the technology, who the investors are and most importantly their financial statements. Most of these companies, whether centralised or decentralised, they don’t give their financial statements. So, you do an envelope calculation. This means that you know their volume, their fees and you get an estimate of what their cash flows are. Given a company which has millions of Ibadar cash flow, you know they have the financial resources to invest in good technology to protect themselves and most importantly, they can use that cash flow to cover their losses. The nuanced stuff is when you dig deep and you understand the risk and try to figure out a hedge for the risk. For example, if you are in a decentralised exchange that’s paying 40% API, but there is a very high risk associated with impermanent loss i.e. function of the volatility of the assets on exchange, you could use options, perpetuals and delta hedging to hedge that particular nuance loss. There are many other examples of using options, perpetuals to hedge a very specific risk. It is a combination of looking at all the tools available to deal with losses you understand. But still there is a lot of unknown.”
How do the panellists feel about regulatory risk in crypto investing, especially in the US?
“I think that the US regulatory policy is very uncertain and somewhat unusual right now. As a result, many crypto funds choose not to do business in the US for the fear that the SEC or the CFTC would come down on their part. There are many crypto companies who have gone outside of the US and don’t take US customers. As an American, I find this disappointing. I would hope that our regulators would not just regulate the bad stuff but encourage innovation. A good example of this was the regulators being encouraging of the innovation of the internet and was US centric. Whereas now with crypto, it’s not US centric. Its pushed a lot of talent, money, and ideas outside of the US and is coming from non-US jurisdictions which are more encouraging of innovation.”
“I think of the biggest regulatory risk is the lack of AML,KYC in the D5 space. There is good reason that they don’t have any AML, KYC because you keep custody in you own wallet. Still, there is a gaping hole in D5 for not having AML, KYC.”
“Another risk is task risk because there’s not clarity, atleast in the US with the RS on how you tax different types on income and gains that you make. I think the IRS is looking at this area and they’ll be some unexpected tax liabilities incurred by hedge funds who are not doing careful tax planning for other activities and D5.”
Anyone wants to touch on anything before we finalise ?
“People new to this place often ask me when is it a good time to buy bitcoin. My reply is buy bitcoin not to make money but to learn since it’s such a big asset at its peak. Once you buy, you are going to start following the news and be financially literate and knowledgeable. Buy bitcoin, but don’t put more than you could lose.
Mitchell Dong is a solar power developer and cryptocurrency miner and trader. He has been developing solar, hydro, cogeneration power facilities for 40 years in the US, Africa and China. He has also been a trader of physical uranium and electric power for the US and Scandinavia. He runs a hedge fund that trades cryptocurrency on behalf of bitcoin miners in Asia and USA and is actively sourcing low cost power for bitcoin miners globally.
