Career dotcom entrepreneur and serial bootstrapper Jesse Proudman is the co-founder of Strix Leviathan, a quantitative hedge fund that’s beating the market through software and systematic investing. Like so many entrepreneurs, Proudman may have found his initial concept as a reward for past struggles. Before his last company Blue Box was acquired by IBM in 2015, Proudman spent almost a decade scraping together funding to keep the private cloud-as-a-service platform running—until the firm had graduated from the tenuous years of bootstrapping to the world of VC funding. In 2015, post-exit, he joined IBM as a “Distinguished Engineer” focusing on crypto and blockchain research and developed an incredible fascination that would eventually form the thesis behind Strix Leviathan. According to Proudman, he began to see visible patterns after analyzing crypto charts with the following assumptions: “This asset class lacked valuation models that were shared among market participants. This resulted in price discovery that’s largely speculative and highly reflexive. At the same time, these markets offer relative liquidity and trade 24 x 7 x 365.” In January 2018, Proudman and one of his long-time colleagues at Blue Box and IBM, Sadie Raney, bid farewell to Big Blue and co-founded Strix Leviathan as their next adventure. Two months later, the quant fund-in-making closed a $1.6 million seed round sponsored by venture funds including San Francisco-based Liquid 2 Ventures, Seattle’s Curious Capital, Future Perfect Ventures, and angels including ex-Seahawks player Doug Baldwin and Orion Henry, founder of Heroku. Fundamentals follow price There’s something philosophically quantitative about Strix’s approach to the crypto market, beyond running a fund where algorithms determine investment decisions and human judgment is minimized. Proudman and his team question the notion that fundamentals play a role in the price of cryptocurrencies—at least for now: “We do not believe this asset class has enough history or clarity to confirm which fundamental metrics provide value in decision making. We will look to incorporate fundamental metrics when there is more clarity around adoption and a longer timeframe to confirm the validity of proposed valuation metrics.” Instead, Strix Leviathan points to the market’s relative lack of history, global 24/7 nature, and “highly fractured” datasets to say that crypto price-action is “entirely defined by the behavioral patterns of market participants,” a stark contrast to the value investing theses behind some of crypto’s best-known hedge funds. A post on the Strix blog states: “The development of a narrative to explain complex and opaque market behavior persists in every financial market; however, cryptocurrency investors must do so with an extremely limited historical record.” For one, Strix describes the narrative of Bitcoin’s upcoming halving being a springboard for an extended bull run as a “circumstantial illusion” propagated by “unsubstantiated belief systems with scant supporting evidence.” According to their analysis, the halving of mining rewards, in fact, had little or no discernible effect on an asset’s performance outside of market sentiment. The fund itself is managed by Nico Cordeiro, previously an analyst at Pitchbook, specializing in private equity, venture capital, and crypto research. Nico told us that, “Cryptocurrency prices are reflexive in nature meaning price is simply the aggregate beliefs of other market participants except those individual perceptions are constantly changing. This results in a market that weaves in and out of forceful positive and negative feedback loops. The Nest Fund is designed to exploit and benefit from these persistent feedback loops.” How to play the market Strix’s flagship fund, the Nest Fund, launched in May 2018 with the ambition of outperforming the top-ten cryptocurrencies with lower beta and correlation. Debuting in the midst of a...