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A recent regulatory filing shows that US private equity firm Renaissance
Renaissance Technologies’ flagship fund Medallion is considering investing in Bitcoin futures, and the fund has been allowed to enter the Chicago Mercantile Exchange’s (CME) cash-settled Bitcoin futures market.

The filing did not indicate whether Medallion has begun buying or plans to buy Bitcoin futures contracts in the future, and Renaissance did not comment. At the same time, Medallion Fund also stated in the filing that Bitcoin futures, a “relatively new and highly speculative asset”, contains numerous risks.

There is no doubt that this Medallion Fund, which has never suffered a loss since its inception and has achieved extraordinary returns during the economic crisis, represents the recognition of traditional capital in the cryptocurrency market and is bound to bring huge benefits to the CME Bitcoin futures market. fluidity.

1. Medallion Fund is once again a god

Last weekend in financial and quantitative circles, Medallion’s performance was widely reported.

According to the Wall Street Journal, as of April 14, Renaissance Technology
Technologies)’s Medallion Fund has a cumulative return of 39% this year. Even in the March market "waterfall" that Buffett had never seen in his lifetime, the Medallion Fund still gained 9.9%. That month, the S&P 500 fell 12.51% and the Dow Jones Industrial Average fell 13.74%, both recording their largest monthly declines since October 2008.

According to CNBC, the management scale of Medallion Fund is about 10 billion US dollars, equivalent to about 70 billion yuan. Based on a management scale of tens of billions of US dollars, the fund has made approximately US$3.9 billion in revenue this year, equivalent to nearly 30 billion RMB. After deducting management fees and performance sharing, the fund has made a net profit of approximately US$2.4 billion, equivalent to close to 17 billion RMB.

In 2020, when the economy is in recession and the stock market is volatile, the Wall Street Journal believes that Renaissance Technology and its founder Jim Simons are expected to achieve record returns in 2020.

Looking back at history, what Medallion Fund is probably best at is "standing out from the crowd" in times of market crisis. Let’s take a look at his historical record: the Fed Treasury crisis in 1994, with a yield of 70%;

Internet stock bubble in 2000, yield rate was 98%;

During the financial crisis in 2008 that left many people bankrupt, the Medallion Fund achieved a 98% return rate;

In Soros's most glorious 11 years from 1988 to 1999, his total return rate was 1,701% but far less than Medallion's 2,478%;

If you invested $1 in the Medallion Fund in 1988, you would have $20,837.84 in 2018, a book rate of return of more than 20,000 times.

2. The unsolved mystery of success

Medallion's success seems impossible to replicate.

You need to have a founder who is a top mathematician who has won the Veblen Award, the crown jewel of the American mathematics community, and you need to form a top brain team with 30% of them having doctorates in natural sciences, covering mathematics, theoretical physics, quantum physics and statistics. In fields such as science and technology, complex and self-learning algorithms have been developed. More than 30,000 servers are needed to process 30 trillion bytes of information every day, find potential mispricings in the market, and profit from them.

Medallion Fund does not predict the rise or fall of stock prices, but uses a "statistical arbitrage" strategy to profit from mispricing through correlations between assets. Medallion funds generally implement a "medium-frequency" trading strategy. The computer will hold thousands of investments at the same time, including stocks, foreign exchange, commodities and futures, for holding times ranging from a few milliseconds to several months.

This huge trading algorithm also has self-learning capabilities and can be continuously iteratively updated, making trading operations extremely complex. So much so that the company's management cannot know in detail why the company makes money and why it loses money.

As a private equity fund, Medallion Fund did not release many details, which also led many people to question whether he was a liar like Madoff, or lied about data.

In addition to the myth of the Medallion Fund, some funds under Renaissance Technology also suffered significant losses. An investor document obtained by Bloomberg showed that as of March 20, a stock fund owned by Renaissance Investment Institution had fallen by about 18% in March.

Of course, it is easy for Medallion fans to refute: Medallion has long returned investors’ funds, and now the funds used for fund operations seem to be employees’ own money, with no motive to deceive others.

Perhaps one reason why the Medallion Fund has performed so much better than the company's other funds is that it is restricted to employees and those close to the company. Of course, working for yourself is more attentive. Of course, another reason for employee-only ownership may be capacity constraints, as this ultra-high return trading strategy only supports current funding capacity.

This is why the Medallion Fund has a higher return rate, but it is not as well-known as Buffett, because its strategic capital capacity is not on the same level as Buffett.

3. Bitcoin futures market injects liquidity

Laying out Bitcoin may not be the idea of Medallion founder Simons. After retiring in 2010, he devoted himself to philanthropy and no longer interferes with the company’s specific affairs.

But as an intelligence specialist and senior cryptographic agent who served at the U.S. Defense Research Institute during the Cold War, Simons should easily understand the logic behind Bitcoin.

In fact, although Medallion Fund can only choose regular military exchanges such as CME due to compliance, CME and Bakkt have only occupied a small share in the Bitcoin futures trading market. BitMex, which ranks top in trading volume, and Approximately It is more than ten times to dozens of times its trading volume.

According to skew data, its trading volume on April 17 was only US$77 million, while the trading volume on that day reached US$2 billion, which was approximately 26 times. In comparison, Bakkt’s trading volume is even smaller.

In 2017, the news that CME launched Bitcoin futures pushed Bitcoin to its all-time high of $20,000. Today, legendary funds such as Medallion are voting in favor of Bitcoin, injecting liquidity into the market while also injecting confidence in Bitcoin’s future.