Beating Bitcoin at Scale with Directional Crypto Strategies | Sam Gaer of Monarq Asset Management
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this enlightening episode of Other People's Money, host Max Wiethe interviews Sam Gaer, CIO of Directional Strategies at Monarch Asset Management, who brings three decades of financial markets expertise from pit trading to electronic exchanges to crypto asset management. (01:43) The conversation explores the recent crypto market volatility, institutional adoption patterns, and how traditional finance professionals are transitioning into the digital asset space. Sam shares his journey from building exchange technology at NYMEX to "burning the boats" and going all-in on crypto, while discussing Monarch's approach to creating institutional-quality return streams that outperform Bitcoin with managed risk.
- Main themes: Crypto market analysis, institutional adoption of digital assets, evolution from TradFi to crypto, risk management strategies, and the convergence of traditional and digital finance.
Speakers
Sam Gaer
Sam Gaer serves as CIO of Directional Strategies at Monarch Asset Management, bringing over 30 years of financial markets experience. He began as a teenage runner in the NYMEX trading pits, eventually becoming a successful floor trader before transitioning to technology, where he built exchange systems for major venues including NYMEX, where he later served as CIO and helped lead the transition from pit trading to electronic trading. He also served as CEO of NYMEX Europe, COO during the $9 billion NYMEX-CME merger, and later as CIO at FINRA before founding the volatility hedge fund Katana Financial.
Max Wiethe
Max Wiethe is the host of Other People's Money podcast, focusing on investment management, hedge funds, and financial markets. He conducts in-depth interviews with industry professionals about trading strategies, market dynamics, and the evolution of asset management.
Key Takeaways
Master Risk Management Through Triple Barrier Framework
Sam emphasizes the critical importance of systematic risk management in volatile markets like crypto. (12:50) Monarch employs what they call a "triple barrier risk management fence" for every single position, which consists of three essential numbers: take profit target, stop loss level, and time horizon. This framework, adapted from Marcos Del Prado's machine learning work, ensures that traders define their expected value, establish clear exit points when assumptions are falsified, and set definitive time parameters for each trade. The beauty of this system lies in its simplicity and comprehensiveness - by defining these three parameters upfront, traders avoid emotional decision-making during market stress and maintain disciplined position management across all market conditions.
Institutional Success Requires Consistent, Low-Volatility Returns
One of the most crucial insights Sam shares is understanding what institutions actually value versus what many crypto funds deliver. (43:49) He explains that institutions controlling vast amounts of investable capital hate volatility of return streams, even if they're comfortable with asset class exposure and drawdowns. The problem with many crypto directional funds is they deliver 300% returns followed by 80% drawdowns that don't correlate with benchmarks. Successful institutional strategies follow the "Brevin Howard or Point72 formula" - delivering approximately 80% of the upside of their benchmark while limiting downside to 20%. This approach creates compelling return streams that compound over decades, which is how institutions think about capital allocation.
Leverage Should Augment Strategy, Not Create Risk
Sam provides nuanced guidance on using leverage responsibly in crypto markets. (16:26) He clarifies that there's nothing inherently wrong with 5x or 10x leverage as long as you have sufficient capital behind it to avoid liquidation and set liquidation prices at comfortable levels. The key principle is that if your position is getting liquidated, you either have wrong leverage or insufficient capital. Monarch uses leverage strategically to construct convexity structures through futures, perpetuals, high-beta ecosystem plays, and crypto-linked equities. The critical distinction is between using leverage as a tool to express views more efficiently versus using leverage to amplify risk beyond your risk management capacity.
Time-Based Track Records Trump Short-Term Performance
For aspiring fund managers, Sam emphasizes that institutions value time-based track records and experience navigating different market dislocations more than spectacular short-term returns. (50:34) He shares that even when generating 100-300% monthly returns on personal capital early in his career, he knew institutions would discount these numbers because they don't scale. What matters is demonstrating low volatility, high Sharpe ratio returns consistently over time while showing asset growth. The key is delivering "market outsized returns" while maintaining a smooth return stream - a difficult juggling act that requires both exceptional skill and patience to build institutional credibility.
Digital Asset Convergence With TradFi is Inevitable
Sam predicts that within 1-2 years, the distinction between crypto and traditional finance will blur significantly. (47:19) Every crypto fund will need to trade equities (potentially on-chain), crypto-linked equities, and AI crypto plays, while major TradFi funds like Millennium and Point72 will go all-in on digital assets. This convergence is driven by on-chain clearing and trading of US equities and debt, along with the institutionalization of crypto infrastructure. The successful firms will be those that can traverse both worlds effectively, understanding technology deeply while speaking intelligently to investors about capital allocation and risk management decisions.
Statistics & Facts
- Bitcoin has delivered 394% returns over the past five years, compared to gold's 134% and S&P's 87%. (07:00) Sam uses this data to demonstrate crypto's long-term outperformance despite recent volatility, emphasizing the importance of zooming out when evaluating digital asset performance.
- The total crypto market capitalization is approximately $3 trillion compared to $70 trillion for US equities, with stablecoins now holding about $170 billion in US Treasuries. (44:55) This context illustrates both the relative infancy of crypto markets and the rapid growth trajectory, with stablecoins becoming one of the largest holders of US Treasury debt.
- Bitcoin's volatility has decreased from 60% last year to approximately 40% this year, though it spiked to 50% during recent drawdowns. (47:01) This volatility compression indicates market maturation, though Bitcoin still maintains twice the volatility of the S&P 500, which creates opportunities for sophisticated traders.
