The importance of risk management, according to the CEO of a leading crypto quant trading firm

Episode 53 of Season 4 of The Scoop was recorded remotely with The Block’s Frank Chaparro and Martin Green, Co-CIO & CEO at Cambrian Asset Management.

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Panic and fear gripped the crypto market this week as falling prices and market pressure caused two industry titans — hedge fund Three Arrows Capital and lending platform Celsius Network — to face potential insolvency.

While the extended crypto market downturn has caught many market participants offside, one high-frequency trading firm managed to not only survive recent conditions but concluded trading for the month of May up 3.7%.

In this episode of The Scoop, Martin Green, Co-CIO & CEO of Cambrian Asset Management, explains why proper risk management is key to his firm’s success, and why he believes there is still a bright future ahead for the crypto industry.

According to Green, Cambrian’s risk management systems are designed to take the human element out of the equation:

“Humans aren't designed to make great analytical judgments when their brains are filled with cortisol, serotonin or dopamine. They're just not. So our systems are designed to take risk off, like sell along, or buy to cover a short if the market goes against us. So if we're long, the market goes against us to some pre-programed amount… the systems will take risk off so that if the market becomes more extreme, we've protected our investors capital.”

Although nearly $500 billion dollars has been wiped from the total crypto market cap so far in June, Green believes the severity of this correction has likely been exacerbated by crypto’s reflexive nature.

As Green explains, “It's highly likely that digital assets are the fastest reacting to changes in inflation and interest rate expectations, and fast-reacting things often overshoot and then pull back.”

While crypto’s volatility often draws the ire of critics who do not believe it to be a viable alternative to the current financial system, Green thinks it is important to remember is still a new technology:

“I think we have to remember — and we all do in the industry — but people outside the industry have to remember that [crypto] fundamentally… is an early stage technology. Early stage in an eventual possible adoption curve.”

During this episode, Chaparro and Green also discuss:

  • What events could trigger a market rally
  • Dynamic portfolio construction
  • The risk of contagion in crypto

This episode is brought to you by our sponsors FireblocksCoinbase Prime & Cross River
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