Fireside Chat with MoonSwan

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  1. Swan consistently beats the market despite significant volatility.

A summary of Swan’s trading and general macroeconomic developments by MoonSwan, our chief investment officer.

Swan consistently beats the market despite significant volatility.

On a high level: The current live “buy the dip” strategy is made up of 3 underlying tokens (Matic, Eth, and Algo), with more weight given to Matic as it showed to have the highest probability for profits in backtesting, which has held up well in walk-forward live trading as well.

Over the last 30 days Matic has lost up to nearly -50% of its value, it’s currently sitting at around -38% while the Swan is only down roughly -10%

Overall Swan PnL (blue) vs. underlying (green):

We were able to accomplish this by making over 46 full round turn trades. Broken down:

— Algo: 19 flips at an average of +$102.73/ea.

— Eth: 2 flips at an average of +$384.50/ea.

— Matic: 24 flips at an average of +$323.36/ea.

This adds up to about $10,000 in realized profits during the last 30 days, significantly lowering our cost basis and priming us for large returns when the market finally does turn around.

This was also done while using as much as 3x leverage at times, so the drastic outperformance in this bear market isn’t stemming from just putting on 1/3 -1/2 the size of the underlying.

ALGO entries (green) and exits (red):

ETH entries (green) and exits (red):

MATIC entries (green) and exits (red):

Macroeconomic analysis:

The war in Ukraine rages on, causing dramatic swings in commodities — especially those related to energy, as Russia is the largest supplier of oil and natural gas to the EU. This adds fuel to the inflation dumpster fire that was already at some of the worst levels we’ve seen in 40–50 years pre-invasion.

It’s also earnings season, which always adds another layer of volatility to the equities market, especially when large players report their quarterlies — (like Amazon, Apple, etc). These make up a very large chunk of the indexes like the Nasdaq and S&P500, which the major cryptos (BTC / ETH) have been highly correlated with in recent months.

Amazon had one of its worst days since 2008 during this earnings report and fell more than 17% in one day, sending shockwaves throughout markets.

The thing I think is cool, coming from traditional finance and continually diving deeper into crypto / web3, is that some of these tokens now underpin real products that actually generate revenue, e.g. easily forkable backend code hanging out on-chain that generates fees whenever it’s interacted with — that then supports the token price through real-world income.

I suspect, as the crypto economy continues to grow over the next few years, that these “business token’s” correlations will decouple from the majors.

All these pieces while maybe seemingly unconnected on the surface are interwoven together to form the global economy.

For example, if the dollar is now worth less (and all other things are the same), then oil will become more expensive in comparison, this will cause airlines to pay more for fuel and cause a rise in ticket prices, which then cause some small local economy to suffer from lack of tourism, and so on.

Sometimes one of these is the dog and the other the tail, but the idea there is the same.

Trading Developments:

We’re still in beta and continually improving strategies, execution, etc. (The existing exchanges / brokers in the space still leave something to be desired, but it’s quite literally the wild-west out here right now).

One edge case we suffered from this past month was an order getting close enough to be triggered with a limit order, but then never actually getting filled before the market made an abrupt and violent downtown of about 25–30% in roughly a week.

So we carried a bit more size into the downswing than we normally would, but this is actually a good thing (our strategy is still very accurate) — with some additional creative order handling we won’t suffer from the same edge case of trying to execute at the exact top of the market at the exact second that it decides to pull back.

However, even with carrying that additional size, we still outperformed the underlying by a significant margin as referenced in the chart above.

— MoonSwan