Strix Leviathan: the crypto quant fund that's beating the market with a differentiated investment approach

Career dotcom entrepreneur and serial bootstrapper Jesse Proudman is the co-founder of Strix Leviathan, a quantitative hedge fund that's beating the market through software and systematic investing.

There's something philosophically quantitative about Strix's approach to the crypto market, beyond running a fund where algorithms determine investment decisions and human judgment is minimized.

Instead, Strix Leviathan points to the market's relative lack of history, global 24/7 nature, and "Highly fractured" datasets to say that crypto price-action is "Entirely defined by the behavioral patterns of market participants," a stark contrast to the value investing theses behind some of crypto's best-known hedge funds.

"Cryptocurrency prices are reflexive in nature meaning price is simply the aggregate beliefs of other market participants except those individual perceptions are constantly changing. This results in a market that weaves in and out of forceful positive and negative feedback loops. The Nest Fund is designed to exploit and benefit from these persistent feedback loops."

Strix's software takes an AI and machine learning-driven approach to capturing alpha, built on the idea that the unique characteristics of the crypto market can be exploited for gain, whether on the long side or short.

"While tools existed for fundamental or discretionary style trading, the ability to derive real-time pricing data, develop algorithmic models, operate successful models against fund capital, execute and settle trades and report on fund performance all required a platform to be developed - a platform we've spent the better part of the last two years developing."

The fund has outperformed by ~60 percent to date against the Bitwise 10 Large Cap Crypto Index, which tracks the ten largest cryptocurrencies weighted by free-float and 5-year inflation-adjusted market capitalization.

Strix says the software platform is a "Differentiator" over funds that manage capital using spreadsheets and pitches to investors seeking "Portfolio diversification and better risk-adjusted returns than a passive buy/hold approach." These include high-net-worth individuals and family trusts, who make up the client base of the Nest Fund.

Like many infrastructure leaders, Proudman and his team have in a sense gone long on the crypto market itself and bet that its eventual form will mirror the size and sophistication of traditional markets.

In terms of size, the crypto quant hedge fund market would look to have ample room to expand, with approximately $370 million in assets under management last year-2700 times smaller than the orthodox quant hedge fund market, which managed roughly $1 trillion as of 2018.