Alex Sunnarborg presented on generating alpha through shorts and derivatives in crypto markets. Some key points: 1) Crypto markets move fast both up and down, especially for altcoins, requiring liquid strategies like short-term trading. However, micro strategies do not work well in contrasting macro environments. 2) Current liquidity in crypto markets does not indicate future liquidity, as many projects are still in development phases with the potential for future exchange listings. 3) Shorting cryptocurrencies requires considering macro conditions, a micro thesis for why an asset is overvalued, and ensuring sufficient liquidity and a minimal risk of short squeezes. 4) Crypto derivatives like options and swaps can be

1. Alex Sunnarborg
Founding Partner | Tetras Capital
@alexsunnarborg | @tetrascapital

2. Alpha Generating Ideas:
Shorts & Derivatives

3. Disclaimer
This presentation is not an offer to sell securities of any investment fund or a solicitation of offers to buy any securities or otherwise.
Investment strategies, including any described, involve a high degree of risk. There is no guarantee that any investment objective will be achieved.
Past performance is not necessarily indicative of future results. There is the possibility of loss and all investment involves risk including the loss of principal.
The information in this presentation is believed to be reliable and has been obtained from public sources believed to be reliable, however there is no
representation as to the accuracy or completeness of such information. Opinions and estimates in this presentation constitute current judgment and are subject to
change without notice. Any forecasts and estimates contained in this presentation are necessarily speculative in nature and are based upon certain assumptions.
It can be expected that some or all of such assumptions will not materialize or will vary significantly from actual results. Accordingly, any projections are only
estimates and actual results will differ and may vary substantially from the projections or estimates shown. This presentation is not intended as a recommendation
to purchase or sell any commodity, security, or otherwise. No obligation exists to update, modify or amend this presentation or to otherwise notify any reader
thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

4. Crypto Market
Liquid
Tokens
Iliquid
VC SAFTs

5. Alpha: Performance vs Benchmark
Beta: Volatility vs Benchmark
Alpha & Beta

6. Beta: Alts > Bitcoin
Bull Market: High Beta -> High Alpha
Bear Market: High Beta -> Low Alpha

7. Crypto moves fast both up & down,
especially altcoins
Optimizing returns: ‘short’ term trading,
requires liquidity
Micro investment strategies do not work well
in contrasting macro environments / market cycles
Crypto still largely momentum based,
not fundamentally
Alpha, Beta, & Macro Market Cycles

8. Crypto Exchange Volume
$100m
$500m
$1b
$5b
Data: coinmarketcap.com

9. Crypto Exchange Volume
$10m
$100m
Data: coinmarketcap.com

10. Current Liquidity != Future Liquidity
Data: coinmarketcap.com

11. Current Liquidity != Future Liquidity
Data: coinmarketcap.com

12. Current Liquidity != Future Liquidity
ICO
ICO
ICO ICO
Data: coinmarketcap.com

13. Incoming ICO / Securities Focused Regulation
Exchange Trading Composition
Minimal VC exits, alt liquidity, many long-term SAFT blockchains yet to launch
Altcoin and VC valuations are not adjusted for illiquidity
Crypto Market Concerns

14. Bear Market Investing Strategies
Sell To Fiat & Wait To Buy Again
Arbitrage / Market Neutral Strategies
Short / Bet Against The Market

15. Shorting Overview
(1) Borrow asset
(2) Sell asset
(3) …
(4) Buy back asset
(5) Give back asset (+ interest)

16. Crypto Borrow Market
Crypto Loan:
- OTC Desks (e.g., Genesis)
- Exchanges (e.g., Bitfinex)
- Crypto Projects (e.g., Dharma)
Jurisdiction / entity / regulatory barriers

17. Short Selection (1)
Macro Environment
+
Micro Thesis
Overvalued as a platform for:
(1) Dapps
(2) ICOs
(3) Value Storage

18. Short Selection (2)
Liquidity
Short Term Roadmap
Breaking news / short squeeze risk
DexsExchangesOTCBorrowDerivatives
Asset Universe
Product Universe
AltcoinsBitcoin

19. Short Market Growth
Data: genesiscap.co/q3-insights

20. Borrow Market Composition
Data: genesiscap.co/q3-insights

21. Derivatives Overview
Hedge downside, speculate on / adjust upside exposure
- Swaps (e.g, Interest Rates)
- Futures / Forwards:
Will buy / sell [ ] amt of [ ] asset at [ ] date for [ ] price
- Options (e.g., Calls / Puts):
Option to buy / sell [ ] amt of [ ] asset at [ ] date for [ ] price

22. Crypto Derivatives Market
- OTC Desks (e.g., Circle)
- Exchanges (e.g., Deribit)
- Crypto Projects (e.g., dYdX)
Jurisdiction / entity / regulatory / liquidity barriers
DexsExchangesOTCBorrowDerivatives
Asset Universe
Product Universe
AltcoinsBitcoin

23. Options Example
BTC Option – December 2019 maturity – $10k strike – 1 BTC
The option to buy or sell 1 BTC at the end of next year for $10k
Call (Buy): ~$500
Put (Sell): ~$6,500
Data: data.ledgerx.com

24. Option Value (1)
BTC: ~$3,500, Call (Buy): ~$500, Put (Sell): ~$6,500
Put Rationale: I buy the option to sell 1 BTC for $10k in 1 year for $6,500
If I can exercise* the option now, I will buy 1 BTC now for $3.5k & use put to sell for $10k. This should cost ~$10k-$3.5k.
Call Rationale: I buy the option to buy 1 BTC for $10k in 1 year for $500
If I can exercise* the option now, I will would not buy 1 BTC now for $10k when I can buy on spot for $3.5k. The chance
that BTC goes over $10k in 1 year (allowing me to buy cheaper than $10k with call) gives the call it’s value.
Data: data.ledgerx.com *American option

25. Option Value (2)
Major Option Pricing Variables:
- Current Price (~$3,500)
- Strike Price (~$10,000)
- Time To Maturity (~1 year)
- Implied Volatility
Data: buybitcoinworldwide.com/volatility-index
Intrinsic Value
Extrinsic Value

26. Crypto Options In A Portfolio
Large $ / short portfolio:
- Call options to negate underperformance for large, unexpected up days (potentially swapping underlying for calls)
- BTC ETF approval
Large illiquid portfolio:
- Call options to negate underperformance of liquid asset rally
- Put options to hedge underperformance in bear market with lack of portfolio liquidity
Mandate:
- x% in one vehicle, etc.
Small notional risk can significantly tweak portfolio R/R