What is moving the crypto market, with AlgoQuant's Michael Ashby

Transcript

GM. Good morning. Welcome to the Milk Road Show, the daily crypto show where the charts are greener than a Whole Foods kale aisle. I'm your host, Jay Hamilton. It's Monday, July the 14th. Bitcoin is at all-time highs. What's going on? What's coming next? And what is setting us up for the rest of the summer? AI is quietly changing the way crypto is traded. Today's guest is working a lot with quantitative trading models using AI. We're going to talk about how AI is impacting their trades and also the quiet reason why institutions are suddenly buying crypto and what we can expect in terms of

institutional adoption in the coming months. Before we jump in, I want to give you all a huge thank you, deep bow of gratitude because we hit 20,000 subs on YouTube just this past week, and I am so grateful for all of your support. We couldn't do this without you. Today's episode is brought to you by Letin Get Cash without selling your Bitcoin. It's also brought to you by Definitive, the leading multi-chain trading terminal trusted by funds, Dows, and Pro Traders. Today's guest is Michael Ashby. Michael serves as CEO and CIO of Algo Quant, a global quantitative trading firm. Don't know what a quant trading firm is? Well, we're going to talk about that today.

Algo Quant runs a team that runs internal capital and allocates to external managers and is also building an asset manage unit inhouse. Michael brings over 20 years of finance and trading experience to everything he does. And he's now fully focused on crypto and digital assets. Without further ado, Michael, welcome to the Milk Road Show. >> Thanks, Jay. Nice to be here. >> Pleasure to have you and an exciting day to have you. That's for sure. Uh, crypto is ripping. Like, everything's ripping. Bitcoin's at all-time highs, but it's not just Bitcoin. All all markets are green right now. Uh, what's what's your what's your take? What's driving this right now? What do you what do you how

do you feel about this current uh pump we're seeing in the markets? >> Yeah, I'm excited as well. Well, I think it's finally the market's woken up to digital assets. I think the um you know, we had the ETF stuff going on, you know, 12 months ago. I think this is a little bit of a lagged response, right? We're uh you know, everybody here was probably early. We're now getting the second iteration of people joining. So, it's great to have some new people buying in. When you see a pump like this, what do what do you look at to confirm that a rally like this has legs or are we due for a correction?

So I think um you know speaking personally I've spent uh my career trading different assets and um you know you look at the volatility of these assets and and digital assets has been traditionally very volatile but Bitcoin the volatility is dampened and again since the ETF came out and now we have the listed treasuries it's creating a um compression component. So think of it dampening volatility. It's actually probably a good thing long term um because you're going to see a slower grind up but less sort of big drops. Um that's not saying that we won't have one. Um but I do think you're seeing a sustained um sort of push into the positive which I think is great to see.

>> When you when you look at uh the the flow of of data and the trades that you see on your end, uh obviously you're working with a lot of institutions and a lot of bigger players. uh what are you seeing behind the scenes that in terms of the trading activity that might give you insight to the way the market is moving right now? >> Yeah. So I think the um so traditional markets you have a lot of alternative data. So Sam Walton at Walmart really revolutionized this. He used to fly around the car parks in a small plane and count the cars, right? So that's alternative data. It's nothing fancy.

But if you look at the large hedge funds traditional finance, they use a lot of this in in crypto. It's not really that interesting. Generally, the insights come from folks on on stuff like this. If you guys are happy, the markets are happy. If you're not happy, the markets aren't happy. So, it's more momentum driven and retail driven. And I think folks in the retail market are generally happy right now. That said, Bitcoin's become very dominant, you know. So, the folks that are um are true Bitcoin believers um I think they're they're happy right now. But if you look at sort of the spread or what we call the delta in quant trading which is the difference between the two there is getting it's bigger and bigger right so I think um I read yesterday or today that bitcoin's now bigger than Amazon in terms of it

value but if you look at the market cap of some of the other tokens is also reducing what that means for us as quant traders is that liquidity is less than some of those other tokens and so as a quant trading firm we like to buy and sell quickly and we we do a lot lots of trades and if there's liquidity, it's easy for us. If there's not, it's difficult. And so, what we're finding is that we used to be able to trade the top 500 tokens. Now, we can trade the top 200 because that bottom token list is just becoming very liquid. And so, I do hope that Bitcoin continues to go up, but I also hope that we can liquidity comes back to more of the tokens as it were.

It's a very interesting perspective because as we've seen over the past basically since the Bitcoin ETF and throughout this bull cycle uh which our take has been that we're still in a bull cycle. It's just an extended bull cycle a little bit different than the past cycles that we've had in 2017 and 2021. So we'd love to is your view just to frame your view is your view when you look at at the quantitative side and we should actually you know what let me just pause for a second can you just quickly most of our audience will know hedge funds um but they might not be so familiar with quant trading firms what what does what is a quant trading firm do can you explain that quickly so we

can just level >> sure happy to um so a quantitative hedge fund quant is short for quantitative basically means that you're using computer models or algorithms to design your trades. So if you think of uh if you put a buy or sell order into your into your engine, that's a discretionary trade. You're deciding if you design algorithm that says at Bitcoin goes to 120, I'm going to buy more. That's the algorithm. So we have a lot of algorithms that essentially decide when we're buying and selling. And so we have uh about 30 teams that do that um around the world. So at any one time they're buying and selling based on different algorithms um action >> and uh one more question around this and

then we'll come back to the the state of the current market. Um so when you say you're using algorithms to trade crypto uh what kind of algorithms or models are we talking about? Uh where's the edge within those? >> Yeah, so it's a good question. And so we we our edge is to find very talented managers who come up with great ideas. Um their edge is essentially looking at different ways of understanding the market and then putting into algorithm. So and this is not um an example of one of our our algorithms but I'm going to give you example of a very common one in in in crypto hedge funds. And so when you if you can monitor the movement between coals and hot wallets,

if a lot of crypto moves from cold wallet to hot wallet, it's a bare signal because people are getting ready to sell. And if cold wallet to hot wallet, vice versa, right? So um often when that happens, um people have algorithms that will tell them to buy or sell depending on the signal. And then the art comes into how much and how long. And so different people have different ways of doing this, but it's a very common signal that goes into the market that's well known. And again, you can do anything. It doesn't really matter as long as it works. And anybody can do this. This is the beauty of crypto. You know, your your audience can definitely mess around with algorithms.

And how is you come from a background of traditional finance before you came into digital assets. How is quant trading with digital assets different from stocks and current FX trading and other more uh more traditional markets? >> Yeah, it's another good question. So there's definitely similarities. Um and what I would say is that one big difference is that the lack of alternative data. Um so again it's much more of a momentum driven market. The other difference is that it's just that the market structure is very different.

And so if you look in uh digital assets, you have big exchanges as well as um large driven markets offshore. We have less um I guess less flow in the US than we do offshore whereas everything else all the flow is in the US. And so there's dynamic shifts if you were in terms of liquidity provisions. And the last thing I'd say is that the infrastructure is quite different. So crypto in a really cool way has been developed by retail. It is now coming to institutional. Traditionally in in ty markets it's the opposite. So we don't have all the systems and providers that we have in traditional finance in crypto. Now they're building that and

the banks are coming and they're definitely going to adopt the technology but I think we still have a couple years left where it's going to be really cool to build ourselves before the big banks come. >> Yeah. I want to it's a great lead into um where we are in the market structure of crypto because I think for it's very easy to forget how early we are in the market structure of crypto and because mainly because our audience has been here for a while and they don't have issues uh buying selling they don't have issues with liquidity they don't have a mandate that says they can't buy certain assets. They're managing their own money

and they do what they want. And I think that is framed a a sort of an impatience in a lot of retail. uh whereas institutions and particularly those who operate on quant trading basis which you know again as you said is like it's really using like it's using math and data and code and models to make trading decisions automatically as opposed to what most of our audience does which is fundamental based and discretionalbased trading. It's you know using more narratives and vibes and you know how you're feeling. Uh so when we look at the current give us an overview of the current market structure that you see

within crypto and like maybe paint the picture of like where we are in terms of the development of the market structure because I think it shows how early we really are and like what do institutions really need in order to start to be here in a big way. >> Yeah. Um the it's a little bit boring but I'll go fast. So they need regulation. Um for the big institutions they are um under a lot of regulation as you'd expect them like they're um the regulation has been built over decades and every time there's a a problem there's more regulation and we've had some problems right so for them to be able to enter the space they need to

have a clear path to do so. Now regulators are always sort of 1 to 3 years lagged. Um but what you're seeing now in the US um presently is a change of regime, right? And so we're getting a lot of positive regulation come out. This is crypto week in the US. We have three bills that are being discussed. So I think we're we're getting there. Once the institutions feel as though the regulators are supportive, they're going to start investing money in building teams. Um the technology that crypto requires is so far advanced to what traditional Binance institutions use.

It's literally night and day. So if you think of if you wire money from your bank is using Swift. Swift was like 1957. It's like almost 100 years ago. Right now we're we're using stable coins which is so cool. But the banks need to go and essentially change out the tech stack and rebuild a new tech stack. And that takes some time. I'll I'll give you a very simple example. So, if you're trading equities in a traditional finance institution, typically the um the number of digits you can have in the price gets capped at 5 to 7. If you're trading like a a crypto asset, 5 to 7 is not going to do it, right? You need 30 plus. So, these systems just aren't built to be able to capture crypto

trading. And so, you need to essentially rebuild that. And that's not a simple thing to do. So where are we in our our journey? So there's been some very large institutions that have invested early and I won't name names but you know they're well-known institutions and I think we're sort of in the second inning if you want to use a baseball analogy. Um but it's accelerating and I I think it's um you're seeing more and more folks get involved and I think you know some of the capital markets um activity we've had I think is is speaking to that and my biggest hope from all this is that we get more traditional finance money entering space because that's going to support more of the founders and the people building cool tech >> and

it's I like that you say the second inning because everybody usually says the first or the last inning. So, it's nice to get the perspective that we're no longer in the first inning. We've moved beyond that. Uh, but where are we? One thing that we've talked a lot about recently is with the we talked a lot about the crypto treasury narrative, right? all these public equities that are taking on this crypto treasury strategy. You know, first popularized by Michael Sailor and Micro Strategy or Strategy Now, and now we're seeing it uh we're seeing it with ETH has really caught the media attention the past week as there's been a whole bunch of ETH public companies doing this playbook, but now we're seeing it as well with

there's many other tokens that are doing this playbook as well. Uh and one thing that stands out to me is the reason that this playbook is very effective is that a lot of institutions have easier access to public markets and better liquidity than they do within crypto. Is can you can you reaffirm is that is that the case? How much how much uh new flows, new capital has will will be able to come into the space as a result of these public companies having their having tokens on their their treasury uh and and using that playbook.

>> Yeah. Yeah. Happy to. I think I think you're spot on. And I think you know I sort of mentioned before we were pregaming. So I'm working with one of these treasury companies in Canada called 10X. And they're um a basket. So, it's fairly unique. They have four different tokens they're going to stake. And the reason I thought that was interesting is it gives traditional finance access to, you know, outside of the big four, but also staking yield. Um, but to your point, there's there's two angles. There's one which is they can access it. So, it acts as a conduit or a a way for traditional Binance capital to enter the space and get exposure.

Almost as important, they can do it in a regulated way. So most of these institutions they have to pass you know know your client and anti-moneyday wandering which is called KYC AML. Defi doesn't do that. DeFi doesn't it's decentralized right? We don't have that. There's been a couple of different uh protocols to try to build something around that but nothing's really taken off in huge yet. this this is a halfway house in my mind allowing those folks to get comfortable with those requirements from regular reg excuse me regulation but also get exposure. So I think there's healthy premiums. And the last thing I'd say is that um you're seeing national champions as well. And the reason for national champions is that a

lot of um pension insurance uh local uh capital and say in Canada they have a requirement to buy Canadianbased stocks. And so you're going to see this happen in Greece, in the UK, in US and Canada. And it's not that we're just doubling up. they're actually are going after money that's sort of captured. Um, but I think look, the long-term play here is that we're going to get more people involved in crypto, more people interested. They're going to buy these things and go, "Hm, I wonder what's next." And hopefully that next step is they're going to come in and and get involved um, you know, in the space even more. So, >> selling your Bitcoin should be a last resort when you need cash. That's why there's Letin, the trusted platform for Bitcoin backed loans. You can unlock

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Definitive's combination of low fees and advanced order types like limit, stop-loss, and take profit, make it one of the best onchain trading experiences there is. The kicker, Milkroad listeners trade free on their first 25,000 in volume. Visit milkroad.com/definitive and start trading like a pro today. It's interesting you bring up staking because that is a so far most of the crypto treasury companies have been Bitcoin and Bitcoin doesn't offer staking and so that that concept is not something that's been and discussed at a wide range. Also only ETFs in the US

only recently when a salani ETF launched was the first one with staking. There is ETP products around the world that do offer staking. So it's not completely new, but when you're talking to how much do institutions understand this idea that you can get yield and I don't even know if they use the word staking. My guess is they more just think about it from the perspective of yield because they're probably like what the heck is staking, right? Um, so do they how much do they really understand in value that you can now have yield on this asset? Is that can they wrap their heads around that? And does that does that is there a similar um asset that they that they can sort of tie that to that they would

understand or is this a totally new concept for them? >> No, it's a good point. So the I guess analogy in traditional finance would be structured products and the structured product market is very big on gold as an example. It's it's uh you know very large and basically what you're doing then is you're you're building in derivative contracts where you're lending and borrowing and there's different rates of yield and so I think the majority of institutions look at it like this. Now there's also counterparty risk and you know staking doesn't come without its risks right inherently they they can be hacked there can be all kinds of different stuff that goes on and so I think that's where people sort of um need education and are looking to experts to manage it for them. So right

now in the institutional world there's a few champions but majority of folks are going in through funds of funds and for you the audience of funds of funds is basically you go to a manager you give them their money and then they go pick other managers for you. So they're they're basically buying guides and paying for guides to go and help them find these folks. is that we're we did this in traditional hedge funds in the early 90s and then everybody got more sophisticated and we're definitely in that journey with crypto funds right now.

So we are early in this concept of structured products within crypto and and is it the case are most institutions just never going to buy spot crypto? Like is that that how many obviously for everybody that's been here that's how we all have invested in it right we've all been buying onchain tokens right whatever you know whether it be bitcoin or ethereum or you know you go down the list right uh will will institutions buy in that way or are they just going to buy these structured products and then does that mean that what's going to happen is you mentioned regulation earlier so we're waiting for regulation

then once we get radiation, then we get the structure products and then then we will get more institutional flow. Like the one thing we're always trying to understand is like when is the pipeline going to either grow the pipeline or when is when is all of a sudden there going to be the next big rush into the pipeline and I think one thing is let me let me actually ask get you answer that question first and I'll ask a followup. >> Yeah. So I think um from my perspective um if the regulation allows them to buy five more tokens, they're going to buy five more tokens. But a lot of the system is set up to distribute ETFs and to distribute mutual funds and funds products. So if you look at some of the

large financial institutions, let's say your bank or your broker, they they can't distribute a spot trade in their system. So it needs to be adapted. So I think we start with the ETFs and these these traditional products and then it slowly moves into as they build the tech stock I was just discussing earlier. I do think that um we will get tokenized products of tradi and that's going to blend the two and you know I I went all in a few years ago right so I love the technology I think the space is awesome I think people are awesome I genuinely believe that technology that we're working with in digital assets and crypto is far superior to trap and so I think we take over their system um now

again that's going to take probably a decade but I'd be very surprised in 10 years if if it's not inverted. I think we go from being, you know, 10% to be 90%. And you know, we the is too good. >> It's it's interesting because everybody has said that for so long like that is not a uh a new new thought that you know crypto is better tech, blockchain is better tech and better tech always wins always. Right. that that is the the story is all this time. The challenge is timing. It is so difficult and for for so many people here those listening to

this show especially we've been here for a while and the there is certainly I think right now there is there's renewed enthusiasm. I mean, price renews enthusiasm more than anything. Uh, and but definitely there's still retail is still not really here in this market, right? We are, as you said at the beginning of the show, really it's the Bitcoin ETF that has been the biggest driver of this bull market so far. So when you step back, how do you see the next, you know, few months, the next year playing out in terms of are we are things like the regulation and

legislation that we're getting in the US and this crypto week that's happening right now and all these are those are we going to feel the impact of those soon or are we do we still need to wait several years before we feel the impact? So I think I think we already are. I think there's um a few of the larger firms in the US deserve a lot of credit for pushing this and lobbing and some some great guys doing some work behind the scenes. Everything has a a 3 to six month lag and um and so I think it's it's not an easy answer because it's opaque but um look you know it can't be any worse than it was from a regulatory point of view.

Um and so we're we're now like is literally 180 and I think the um the US is is definitely leading the charge and moving forward. You have Mika in Europe which is also providing a rule set. I'm based in Dubai. The UA UAE has been very forward thinking and positive. So I would take Solless and all of this is a win behind your sales in terms of the institutional adoption that's also happening. That's another win behind your sales. So you got like two wins and then the key is just to be like keep an eye on macro because there is a lot going on in that space and we are seeing the effect of it on the book. The last thing that we're very focused on internally is how is crypto market

structure maturing and as you see the maturity of the market what does that mean for volatility for for price action for liquidity and I think if you think about those three barometers if you see them change let's say you're you're mapping out Bitcoin vault and um it's at you know a multi-year low and all of a sudden it starts to change you should pay attention I don't know what that means. I don't think anybody does, but it means something because something's changing. And so, I think like keeping an eye on that, especially as we come out of the summer, like could be a very interesting interesting time to um to do some investigative uh investigative work.

>> It's always always an interesting time to do investigative work in crypto because 247 markets is uh is is exhausting sometimes. It's uh it's obviously a much better infrastructure versus what we have right now. That's for sure. No doubt to have global access 247 markets. But uh crypto never sleeps and sometimes neither do we. So that makes it that makes it both fun and tiring at the same time. Uh when you when you step back, uh how do you feel right now about the rest of the summer?

Do you think that, and I know these are difficult questions to answer, but do you think that we are uh are we set up for a rally? A lot of people right now are, hey, there is I we got comments right now coming in the show, you know, altcoin season is imminent. Here we go. We're we're about to pump, which is natural when we have these big pumps and everything is green. Um I'm still a little cautiously optimistic in the short term, right? It feels like hey a lot of a lot of the things we're talking about are not necessarily now things they are we're headed in the right direction and there's a lot of tailwinds as you said um how do you how do you frame the next the July August the next

few months >> yeah so I guess um being a quant fund we we um defer to our algorithms as it were um that said you know some traditionally is is is a little bit more boring right? People are on holiday. You know, it's better things to do than than sit you look at your screen all day. But and this is not crypto. This is also traditional Binance markets because a lot of the decision makers are away and not paying attention. Sometimes you can get awesome price moves um because there's not as much liquidity. You going back to that concept of liquidity. And so, you know, um if you have a less liquidity, you know, a move can really go parabolic fairly quickly. So, I think it's definitely going to be an

interesting summer given the moves we're having currently. But I think really to your point, we'll see come September, October, what what really gets into gear as sort of every get back to work and gets going type thing. >> Yeah, I like that perspective that there's it's a summer of opportunity, but that the uh it doesn't mean that the old adage of selling may and go away isn't is different this year. the every the same people that take vacation every summer are still taking vacation this summer and still taking time away from their screen. Uh I want to touch on AI quickly before we let you go. Michael, how is AI impacting you as a quant trading firm?

>> Yeah, so I think it's great technology. Um I've been working with with artificial intelligence through most of my career today. You know, we're on this next gen right of it. And I think um LLMs are awesome pattern recognition tool. So you know personally I use it every day. I find it is almost uh becomes a pseudo like I'm Billy walking with a library next to me, right? It's an awesome uh awesome um resource to be able to use and I find it also very helpful to structure plans. Um, so for anybody that's sort of looking to um that side of it, you know, I'm a big fan. In terms of the actual research

perspective, um, we find it does a great job to give you sort of a base thesis. So, let's say that we come up with an idea and um, we want to test the idea. We can very quickly ask an LLM to do it for us. It's probably going to get us to like 80% of what we want, but it's enough for us to say like that's a throwaway idea. Nothing there or actually something could be interesting that back in the day it would probably take us two days to do that by hand or you know manually computing. So what it's allowed us to do is is cycle through a lot more ideas quicker. Um but it's still it's a tool, right? It's not a beall end all. And I think the other thing I would say is that I've noticed a

lot of folks really, especially dyslexic people, uh, myself being one, tend to do very well asking LMS questions because you sort of are typing out in in longer term. If you don't use LMS and treat it as though you would a very simplistic tool, I think people fail um to get all they can get out of it. Um, so I always encourage our team to really think of it as though they're an intern on your desk or your team and talk to it as you talk to an intern. And if you do that, it's going to get great results. If you start treating it like your peer, you're not going to get the same stuff. You have to get context and get it out.

>> Yeah, it's I completely agree. It's uh it is a fantastic intern, but you can get into a dangerous state if you start to give it too much responsibility and too much authority and trust it too much. I mean, Sam Holman says all the time that he doesn't trust Chat GPT, his own product, right? It's like the best reminder uh that it's not where where a lot of us consider it to be quite yet. Michael, absolute pleasure to get you on the show today. Thank you so much for joining us and breaking it all down. I think uh Bitcoin all-time highs is pretty exciting right now and hopefully uh we'll see where we go from here, but I think the the summer will be full of opportunities as you said and then I feel like the fall is when we'll really really see the markets turn into uh

something bigger. Although I think the with throughout the summer these public companies, these treasury strategies could really continue to be the main narrative and capture a lot of capital uh into particularly the leading tokens. So, I think we could see some uh some continued pump there. >> Yeah. Awesome to talk to you. Thanks for having me. >> Thanks so much for listening in everybody. I have to remind you as always that none of today's show is investment advice. I am not your financial adviser. Michael is not your financial adviser. You should always do your own research and think before you make investments. If you need any help with your investing in crypto, you should subscribe to the Milkro Daily Newsletter. hits your inbox every day and gives you the download of what you need in that day. And if you want to go

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