Crypto Hedge Fund Starkiller Capital: Digital Assets Have No Value

Crypto's biggest critics often argue that digital assets have virtually no intrinsic value, that the technology underlying it has failed to prove its usefulness, and that the market for digital currency is built on little more than hype. And that's all true, according to a report by researchers at Starkiller Capital, a crypto-focused hedge fund, CNN Business reported.

Photo Insert: Starkiller Capital GP/CIO and Estimize Founder Leigh Drogen

But it doesn't mean you can't make money from it. Crypto trading is essentially a "hot ball of money" bouncing from one digital asset to the next, driven by an ever-shifting narrative about innovation and potential future value, according to the paper's authors, Leigh Drogen, Corey Hoffstein, and Kevin Otte.

At any given time, they write, there are a few dominant narratives driving cash into the crypto space, amplified by the fact that crypto market participants are "very online."

"We may hold a little bit of a different view from some of the more... religious-type crypto people," Drogen said. "When we talk about utility and intrinsic value, there's not much there yet... But we are definitely true believers in the long-term trajectory of the actual utility."

In short, crypto is an emerging technology and investment that isn't for everyone — not yet, at least. For now, crypto is a pure momentum play — and not one for the faint of heart.

Momentum trading is in an investment strategy that aims to capitalize on a trend. If a stock is going up, you should buy it because it has the momentum to keep going up, the thinking goes.

It's been an especially popular strategy for retail traders who got their start during the bull run of the early pandemic era. See a stock going up, buy the stock, make money. See a stock going down, short it, make money.

In Starkiller's study, digital assets that performed the best over a 30-day period tended to continue to outperform over the subsequent seven-day period. That's the momentum at work.

Trading strategies that exploit this phenomenon have consistently delivered excess returns relative to bitcoin, which the researchers used as a benchmark. The momentum effect becomes self-fulfilling "as market participants attempt to front run the hot ball of money."

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