The cryptocurrency market has entered an era of存量博弈 (stock game), where many retail investors have either exited or chosen to remain inactive. Trading volumes are low, and the market has struggled to generate significant momentum for quite some time.
Yet, capital never sleeps. Participants are constantly exploring new ways to generate returns. In this quiet market, quantitative trading appears to maintain a degree of vitality.
Some say the quantitative trading space is murky, filled with scams and dubious intermediaries. We recently spoke with nearly 20 teams claiming to engage in quantitative trading. Among them, some have been active since 2013, navigating the early and volatile days of crypto. However, the majority entered the scene around 2017, lured by the dazzling—though short-lived—wealth boom.
As arbitrage opportunities in traditional finance have narrowed, the cryptocurrency market presents a landscape reminiscent of early securities markets: ripe with opportunities and potential fortunes. Consequently, financial experts from A-shares markets or Wall Street veterans are increasingly turning their attention to this new gold rush.
Believers and Profit-Seekers: The New Gold Rush
As the ancient saying goes, people hustle for profit and bustle for gain.
The global cryptocurrency market operates 24/7, 365 days a year, allowing everyone to participate in this non-stop game of capital.
Within this ecosystem, you’ll find true believers in Bitcoin, sharp opportunists who follow the money, and various other actors who operate without allegiance to principles or reputation, often engaging in short-term, high-risk schemes.
Yin Hongliang, founder of Pcoin, belongs to the first category. He has been active in the crypto space since 2013, persevering through major bear markets and black swan events like the Mt. Gox hack and significant liquidation incidents. His strategies evolved from simple cross-exchange arbitrage (commonly known as "搬砖" or "moving bricks") to more complex futures, spot-futures, triangular, and multi-legged arbitrage. Long-term commitment and steady performance have allowed Pcoin to build extensive industry connections, partnering with top wallets, exchanges, mining pools, and hardware manufacturers.
Compared to the scarce early adopters, the seasonal and transient participants are far more numerous. Most entered around 2017, attracted by the explosive growth of digital currencies.
Liu Zhen, founder of CCC, and Song Zhengxin, founder of Magpie Finance, fall into the second category. Both joined the crypto space in 2017.
Liu Zhen is a seasoned finance professional, having worked in hedge funds on Wall Street since 1995, joined China’s EFund Management in 2009, and started a robo-advisory firm in 2014. Song Zhengxin joined BlackRock in 2007 and moved into crypto quantitative investing in 2017.
Their transitions were relatively smooth, given their strong financial backgrounds and track records. For instance, Liu launched China’s first hedge fund in 2010, and Song managed a $5 billion quantitative fund at BlackRock, achieving a 77% cumulative return over five years.
Then there are teams of uncertain origins—presenting themselves as Wall Street elites with impressive but unverifiable historical performance curves. They aggressively pitch their products to potential clients. Unfortunately, while investors may be drawn to the promised high returns, these teams often have their eyes on the principal.
Strategy Homogenization: The Devil Is in the Details
From our survey, CTA (Commodity Trading Advisor) strategies and statistical arbitrage are the two most common approaches among quantitative teams, with the latter being more prevalent.
CTA strategies, also known as trend-following strategies, rely on advanced time-series models and complex statistical methods. They aim to profit by buying during uptrends and selling during downtrends, or by buying low and selling high during mean reversion. These strategies are characterized by high risk and high potential returns.
Statistical arbitrage uses computerized programs and probability principles to execute trades. This can be further broken down into spot-spot, futures-futures, spot-futures, and multi-legged arbitrage.
As Yin Hongliang explains, arbitrage models offer stable and relatively predictable returns, largely independent of direct price movements. By reducing price disparities across different tokens, exchanges, or financial products, arbitrage helps promote fairness in the digital currency market.
"Arbitrage strategies are highly homogenized. Success often comes down to programming细节 (details). Since trading frequency is high, a small difference in execution can accumulate over time, leading to significant gaps in overall returns," shared a quantitative team based in Hangzhou.
Mastering these details requires deep financial expertise. According to Yin, only the top quantitative teams in the crypto space currently engage in pure arbitrage strategies.
Who’s Making Money, and Who’s Losing?
Interviewees unanimously reported that their funds have remained profitable since inception.
In terms of returns, most teams claim to offer investors annualized returns of at least 15%. Some older teams report consistent annual returns between 50% and 60%, while those entering in 2017 have even achieved historical annualized returns of up to 150% (denominated in BTC).
Based on data provided by these teams, the estimated total assets under management amount to roughly 50,000 BTC. Assuming a conservative 15% annualized return, these teams would collectively extract approximately 7,500 BTC from the market each year.
However, since the global crypto market entered a bear market in early 2018, trading activity has dwindled. According to QKL123, daily trading volume now sits around ¥120 billion, less than a third of its peak. A significant portion of this volume is believed to be artificially generated by trading bots.
"The crypto circle is a small market. There are only about a dozen teams that have genuinely transitioned from traditional stock or commodity quant trading to crypto. There are too many scammers. I estimate the total size of China’s crypto quant fund market is no more than ¥1-1.5 billion," said Li Zhe, partner at FutureMoney.
Li Zongcheng, CEO of Timestamp Capital, added, "Quantitative investing is a zero-sum game, or even a negative-sum game. If someone is making money, someone else must be losing."
The paradox is striking: at a BTC price of ¥23,000, 50,000 BTC is worth approximately ¥11.5 billion. Our sample included only 20 teams, yet rumors suggest there are over 2,000 teams in China alone claiming to engage in quantitative trading.
How to Identify Fake Quantitative Teams
So how can investors distinguish genuine quantitative teams from fake ones?
Yin Hongli suggests first examining promised returns. Many products on the market promise guaranteed annual returns of 20% or "monthly" returns exceeding 10%. Regardless of the team’s authenticity, high fundraising costs often indicate poor fundraising capability and underlying instability. Second, consider team size. Authentic quant teams don’t require manual monitoring. Teams that need large numbers of staff for monitoring and操作 (operations) likely rely on manual or trend-based strategies, which carry higher risks.
Shi Ruoyang, founder of Bemore, advises larger investors to visit quant teams in person. "Genuine trading teams are usually easy to identify—by their office setup, displays, running strategies, and technical staff."
Li Zongcheng warns investors to be wary of teams that actively solicit funds. Successful quant teams typically don’t have large capital needs; they often manage their own money effectively. He also advises investors never to transfer funds directly to a quant team to prevent potential fraud. "A common practice is to provide quant teams with exchange API keys. Funds remain in the investor’s exchange account, allowing the team to execute trades but not withdraw funds."
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The Long-Awaited Regulatory Clarity
The Chinese government has taken a clear stance on digital currency regulation. In 2017 and 2018, it issued the "Notice on Preventing Token Issuance Financing Risks" and the "Risk Warning on Preventing Illegal Fundraising in the Name of 'Virtual Currency' and 'Blockchain'", respectively. These documents prohibit any organization or individual from illegally engaging in token issuance and financing activities, aiming to prevent illegal fundraising, token issuance, pyramid schemes, and unauthorized securities activities.
Chen Yunfeng, senior partner at Zhong Lun Law Firm, has pointed out that "quantitative trading, as a specific model of digital currency trading, carries significant compliance risks under China’s current regulatory policies. Some digital currency funds even publicly raise funds under the guise of 'quantitative trading,' which largely涉嫌 (涉嫌, suspects) illegal absorption of public deposits and other crimes."
How do quantitative teams view these potential legal risks, and how do they respond?
Liu Zhen stated that his team is moving towards becoming a compliant digital asset fund. Following the Hong Kong Securities and Futures Commission’s release of a regulatory framework for virtual assets on November 1, 2018, the team established a compliant digital currency fund in Hong Kong and is actively communicating with the SFC to apply for a Type 9 asset management license.
Some teams choose to register in the Cayman Islands to mitigate domestic legal risks and obtain licenses to operate digital asset businesses. Additionally, to comply with international regulations, all clients must undergo strict KYC and anti-money laundering background checks.
"We actively welcome and embrace the implementation of digital currency regulatory systems. Our core team has previously obtained financial licenses from bodies like the FCA in the traditional financial sector. We believe embracing regulation is beneficial for the entire industry to grow larger and stronger," said Song Zhengxin of Magpie Finance.
Increasing Competition and Market Professionalization
Compared to traditional financial markets, the cryptocurrency investment ecosystem lacks robust infrastructure. Areas like asset custody and fund distribution remain underdeveloped.
For participants, the professionalism of quantitative teams needs improvement. Many lack experience in traditional finance or quantitative fields. Some semi-professional teams might perform well during bull markets but lack strong capabilities in data analysis, risk modeling, and control. Investor education is also urgently needed. Many investors have weak risk awareness, making decisions based solely on returns without considering risk-adjusted performance. This can lead to a situation where "bad money drives out good."
From a regulatory perspective, the absence of industry standards and oversight allows many teams to use the "quantitative" label while essentially operating fund pools or non-quantitative schemes. The growth of the digital currency quantitative industry requires more supportive policies and法律法规 (laws and regulations). Without them, the industry will remain in a gray area, posing risks to both investors and practitioners.
Nevertheless, interviewees universally expressed optimism about the long-term development of the quantitative market.
Since the widespread adoption of commercial computers, quantitative methods have accounted for 50% to 85% of trading volume in traditional finance. In Yin Hongliang’s view, quantitative trading is an inevitable market product. "From a broader social value perspective, quantitative practitioners are essential for making market trading fairer. For example, spot arbitrage eliminates price disparities across exchanges; futures-spot and futures-futures arbitrage make markets more rational and less prone to manipulation; trend trading makes pump-and-dump schemes more difficult and raises the barrier to such activities."
Shi Ruoyang similarly believes that as the digital currency market expands and new capital enters in the next bull market, quantitative methods will become a standard tool for fund management. In this process, many underqualified or unprofessional teams will be淘汰出局 (eliminated).
Ultimately, the market will gradually move towards greater professionalism, competition will intensify, and profits will return to more rational levels.
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Frequently Asked Questions
What is quantitative trading in cryptocurrency?
Quantitative trading uses mathematical models and automated software to execute trades based on predefined strategies. In crypto, it often involves arbitrage, market making, or trend-following across various exchanges and instruments.
How can I verify the authenticity of a crypto quant team?
Look for verifiable track records, transparent strategy explanations, and professional backgrounds. Avoid teams promising guaranteed high returns. Ideally, visit their offices, check their technical infrastructure, and ensure your funds remain under your control via API access.
What are the main risks involved in crypto quantitative trading?
Key risks include market volatility, strategy failure during unusual market conditions, operational errors, exchange hacks or insolvency, and regulatory changes. Proper risk management and due diligence are essential.
Is crypto quantitative trading profitable during bear markets?
Certain strategies, like arbitrage and market making, can remain profitable in bear markets as they rely on relative price differences rather than overall market direction. However, returns may be lower than during bull markets.
How does regulation impact crypto quantitative trading?
Regulation varies by jurisdiction. Compliance with KYC/AML laws and securities regulations is crucial. Regulatory clarity can enhance investor protection and industry legitimacy but may also impose operational constraints.
What is the typical minimum investment for quant funds?
Minimum investments vary widely, from a few thousand dollars for some products to millions for exclusive funds. It depends on the strategy, team, and target investor segment. Always ensure the terms align with your risk tolerance and goals.