With Bitcoin up a strong 321% year to date, cryptocurrency hedge fund manager John Chalekson looks like a genius. The crypto hedge fund, whose marketing materials for limited liability partnerships are available online, delivered 2,129% returns to investors basis August without using leverage. In fact, in May, Chalekson claims to have been up 273%, primarily by investing in new currencies. The man whose Facebook profile who lists himself as a “principal investigator at Wikileaks” and claims to use “deep web information flows” to conduct cryptocurrency analysis claims to have found success by picking little-known crypto-currencies at very low levels.
Chalekson says crypto hedge fund low-risk investments can deliver big returns
Chalekson runs an unregistered hedge fund whose performance has yet to be audited. He is a busy man lately, as a recent ZeroHedge article generated significant new potential investors, which his voice mail message and publicly available marketing materials welcome.
(Separately, an unregistered US hedge fund soliciting US investors through the Internet or general promotional methods is forbidden by the US Securities and Exchange Commission as well as the Commodity Futures Trading Commission, although these laws are complex and were relaxed by the JOBs Act.)
In his marketing materials, Chalekson characterized cryptocurrencies as “low-risk, high-yield emerging market sector without geographic limitations.” In 2017 alone, the price of Bitcoin – not the most volatile cryptocurrency – dropped from $2,965 on June 11 to 1964 on July 16, then rocketed higher to currently trade just above $4,400 – a roller coaster ride investors might do well to understand before investing.
Despite the wild price movements in cryptocurrencies, he said that it “sounds crazy,” but low-risk investments do not have to have low returns, a claim that has not ever proven consistent in history. But this time it’s different, the crypto hedge fund manager claims, pointing to cryptocurrencies being embraced by banks and the financial mainstream as a sign a new era where the rules of investment gravity might not apply.
Chalekson's "game theoretic equilibrium" concept is "just a term that I thought sounded good at the time.”
Chalekson’s goals are equally lofty. His marketing materials claim he wants to “dominate the hedge fund indices with extraordinary numbers,” a performance claim that will be accomplished through a “bottom-up process” that analyzes cryptocurrency fundamentals as well as technical factors. Fundamental analysis in cryptocurrencies has yet to be academically validated – in fact, Chalekson is the first known fund manager to publicly discuss his fundamental cryptocurrency evaluation methodologies.
Part of this valuation methodology centers on “game theoretic equilibrium,” which ZeroHedge said was “what one would say when scrambling for sophisticated words to sound intelligent.”
When asked by ValueWalk to explain the concept, he said it “was just a term that I thought sounded good at the time.” But there was also logic of sorts: “What I was trying to convey is that markets are dynamic, they are reflexive,” he added, pointing to generic statements that can apply to many markets. “They go through boom and bust periods as we have seen through a dynamic, historical, reflexive, irreversible, process.”
ZeroHedge, for its part, was skeptical. "Reading through the full presentation reveals much more such language (which probably would be a sufficient red flag) although the most remarkable feature of the crypto hedge fund, as noted, is its performance," they wrote.
The fund’s risk management is guaranteed by sizing positions “to ensure that an adverse outcome on any single investment,” as the crypto hedge fund has a net long orientation and does not sell cryptocurrencies to hedge.
Chalekson also fashions himself somewhat of a digital detective:
In the course of doing research in the cryptocurrency world, I happened to come across various deep web information flows that lead to some collaborative information sharing with the Wikileaks organization. The hedge fund is deeply tied to global information flows across international financial systems because that is the space in which cryptocurrencies function.
On a personal level, Chalekson said he was kicked off Linkedin for unknown reasons, an issue he is currently disputing with the company. But such efforts to reduce his profile on social media have not dampened his belief in the religion of Bitcoin and his apparent lack to faith in traditional monetary systems. He wrote:
Money is basically an accounting system of who owns what, backed by a trusted 3rd party, which has essentially become governments. Meanwhile, central banks have been colluding with governments to manipulate this monetary system for particular reasons, political, profiteering, and otherwise. In the end, money is really just a massive system of accounting, with as much objectivity as possible ideally – it’s simply the technology we user to determine where value is, and who owns it.
As Cryptocurrencies are established with increasing regularity, it might smell like the Tulip mania de jour to some, but to Chalekson it represents a transformation of a digital society where profits can be had. Caveat emptor.