Making bitcoin on bitcoin
Solarz’s job is to allocate capital to money managers. Crypto hedge fund investing is experiencing a bit of a golden age, he told CoinDesk previously. These markets are so new that money managers are able to run 20-year-old trading strategies that stopped working in TradFi over a decade ago due to increased competition.
Market neutral strategies — like various forms of arbitrage — are among Solarz’s favorites, and Amitis tends to privilege funds focused on these (instead of, say, venture investing or liquid directional bets). Right now, market neutral funds can typically be expected to make 20% returns year over year in a relatively risk-free manner.
Compounded over a period of 10 years, such returns would leave an investor up 519% regardless of the market’s performance. That explains why they’re so popular.
Solarz’s base case is that bitcoin itself will likely rise to $500,000 in the next 10 years. All things considered, it’s a rather conservative target. ARK Invest, for example, raised its BTC price target earlier this year to $2.4 million by 2030.
Having such a thesis for bitcoin changes the calculus when it comes to allocating capital. “If BTC is going to go up 5x, why would you ever complicate things and invest in a crypto fund to try to get a 6x instead of just investing in BlackRock’s IBIT?” Solarz asked recently.
The answer, he said, is to pursue market neutral strategies that are denominated in bitcoin. Instead of investing $100,000 with the expectation of getting $120,000 at the end of the year, you invest 1 BTC in order to get 1.2 BTC. In other words, the dollar value of the investment doesn’t matter — it’s all about the returns that you made in bitcoin terms.
This strategy enables Solarz to combine the returns from the market neutral strategy with the returns from bitcoin’s price performance. Over 10 years, that’s almost 3,000%. Even if the market-neutral strategies don’t consistently put out 20% over that period of time (or if bitcoin stalls before reaching $500k) the upside is tremendous.
So what’s the catch? “It's rare to find people who can make BTC on BTC,” Solarz said. “No one wants to borrow bitcoin. Everyone has bitcoin and they want to borrow dollars… Nevertheless, I find the managers that can [do it].”
“There are so many different ways to skin this cat,” he added.
