Patrick Tan Provides Insight on Novum Alpha’s Digital Asset Investment Strategies
Offering clients strategic perspective to enhance digital asset treasury management and quantitative trading, Novum Alpha believes that “even if you don’t believe in Bitcoin, there’s no reason you shouldn’t profit from it.”
As a leading digital asset management firm specializing in cryptocurrency with investors from across the globe, Singapore-based, Novum Alpha gathers a team of expert managers, entrepreneurs, lawyers, data scientists and traders, offering clients in-depth, diversified and strategic perspective to enhance digital asset treasury management and quantitative trading whilst minimizing risk and boosting profit.
Patrick Tan Provides Insight on Novum Alpha’s Digital Asset Investment Strategies
Tell us more about what brought you to establish Novum Alpha? What specific needs is the Company answering?
Novum Alpha is the digital asset treasury management and quantitative trading division of the Novum Group, we help clients profit from cryptocurrencies or grow their existing digital asset portfolios.
During the ICO (initial coin offering) rush of 2017-2018, many startups and established firms had sizeable digital asset holdings which they were looking to grow, whether as a hedge against dollar depreciation, or to grow their existing pool of resources and we provided solutions for those needs.
At the time, we were already providing liquidity on various cryptocurrency exchanges and running our own proprietary trading firm that was privately held, when we were approached by Mr Christopher Low, the founder of the Novum Group over an acquisition.We got to know the team at the Novum Group and it was a natural fit.
Today, we have grown our trading team to include teams from New York, Bangkok as well as Singapore and we deploy a variety of trading strategies, some of which are geared to increasing digital asset holdings and others strategies for those who are not necessarily sold on cryptocurrency but want to make money from trading in cryptocurrencies – these would be dollar-denominated strategies.
What sort of cryptocurrency trading products do you offer?
Our most popular product by far has to be the Novum Digital Asset Alpha Managed Account Service. Basically, our clients have access to our deep learning tools which filter out cryptocurrency market manipulation and deploys trades with a high degree of conviction in order to maximize returns. Clients still maintain their own digital asset accounts with top flight cryptocurrency exchanges such as Binance, but we trade on their behalf.
We also provide liquidity for various cryptocurrency exchanges as well as treasury management services.
How have your results been for clients?
To date, we’ve returned over 800% for clients and over 300% on an annualized basis, but we are looking to do even better than that.
There are still plenty of opportunities for supernormal returns in the digital asset space, simply because the industry is still very immature and derivatives have only just started appearing on the scene.
What is the essence of your trading strategy?
We have traders and programmers who are experts in programming computer vision models as well as AI for games – both of which have been extremely useful in modelling trading behavior in cryptocurrency markets – which are far less sophisticated than the traditional financial markets.
Whereas most of the alpha is quickly traded out of financial markets, in cryptocurrency markets, the 24/7 nature of the market means that AI and deep learning tools don’t just provide a trading advantage, they are a necessity to operate in this environment.
On top of that, we also deploy active hedging of all our positions and capitalize on arbitrage opportunities where they present themselves.
As you can imagine, the amount of data and processes involved mean that automation is a key ingredient of our workflow.
What are cryptocurrency markets like and are they risky to trade?
Many of the traders I meet with regularly in this field were previously foreign exchange (forex) traders, who would trade pairs like the dollar vs pound, dollar vs yen and other major currency pairs.
They liken the cryptocurrency markets as very similar to the forex markets of the early days, where there were relatively fat margins and imperfect information, allowing traders to carry profitable trades for longer durations. I am inclined to agree with that analysis.
There isn’t as much noise in the cryptocurrency markets compared with the financial markets specifically because there just aren’t as many participants and not as many factors that you can put into an algorithm. The best and most functional algos are really the most straightforward ones, because they’re robust and cryptocurrency markets don’t (as yet) have a clearly correlated “macro” aspect.
Does Bitcoin have a strong correlation with gold? While news headlines may declare that it does – the data doesn’t support that conclusion. So I would say that as with all things, it’s not so much about the risk, it’s about how you manage that risk. Even driving a car is risky if you’re not careful, so is crossing the street. Ultimately, it’s what you assess that risk to be and how you manage it.
How would you define your investor network? How successful have you been at fundraising? What kind of client should approach you?
Thanks to the Novum Group as well as through our own strong personal contacts, we have been quite blessed to have had a constant stream of clients and these have come mainly through word-of-mouth or by way of introductions.
The Novum Group has been around for several years now and in the cryptocurrency context, that is a very long time. Many of the cryptocurrency companies that were huge in the early days of the cryptocurrency hype cycle no longer exist today. So I have to say that we continue to be blessed by our clients and by our work with the Novum Group.
For clients who are not necessarily taking a position on cryptocurrencies, whether long or short, I believe that the Novum Digital Asset Alpha strategy is ideal, because it doesn’t form an opinion on the long term price of any specific digital asset and denominates its returns in dollars.
So even if you don’t believe in Bitcoin, there’s no reason you shouldn’t profit from it. I would say the bulk of our clients, owing to their background in traditional businesses, come from that perspective.
Separately, we also have a significant pool of clients who are holders of large amounts of cryptocurrencies such as Bitcoin and Ethereum. They are long-term bulls on cryptocurrencies but they also need to pay for their rent and food in fiat currencies such as the dollar – we help them to harness the best of both worlds.
Where do you see Novum Alpha in three years?
The Novum Group as a whole, has expanded rapidly in the past few years. Today, we have offices in Kuala Lumpur, Bangkok, Hanoi, Seoul, Bali and our headquarters is still in Singapore.
Despite the coronavirus outbreak, we have not seen any significant drop off in deal flow or interest in our various product offerings and our order book continues to be robust and resilient.
We are working closely with some very strong fund management companies both in Singapore and in Thailand and we are in the process of launching several regulated digital asset investment strategies that will be targeted towards institutional investors such as family offices.
I would say that the cryptocurrency space is very dynamic and that’s what makes it very interesting.
In three years, I see the company as growing its client and asset base, but also, I believe we will diversify into other product offerings as the Novum Group grows and our business units start to overlap.
Could you discuss your thoughts on the recent black monday phenomenon due to coronavirus jitters – has that at all had an impact on digital assets? What are the implications?
I think that there was certainly a group of investors who were of the view that Bitcoin could represent a safe haven, similar to gold in times of turmoil. But the data simply does not measure up nor does it suggest that Bitcoin serves such a role. Ultimately, there is still a significant element of risk involved with taking a long position on Bitcoin and that played out when Bitcoin and other cryptocurrencies took a tumble against the backdrop of market turmoil.
For now at least, I think investors are still trying to figure out the nature of digital assets and where exactly they ought to sit within an investment portfolio. To this I would advise that because digital assets are so novel, the narrative behind their value proposition is still evolving, which means there are a myriad number of factors which can affect price.
Instead of trying to take a position on digital assets, where the odds of being wrong are high, it would add more value to take an agnostic approach – in other words, profit from the volatility inherent in digital assets, instead of trying to forecast where their prices will land.
That digital asset prices have moved so significantly and that such movement has been attributed to macro issues such as the coronavirus, does suggest that as an asset class, cryptocurrencies are maturing.