Case studiesMarch 20231 to 16 March 2023 (UTC)
Silicon Valley Bank fails, USDC breaks its peg, Bitcoin below $20,000
The largest US bank failure since the 2008 crisis, and USDC at $0.87. Discrete Alpha bought with size at the height of the bank run; with the Treasury Secretary ruling out a bailout, it added heavily 2 hours 15 minutes before the joint backstop.
- Bitcoin, 1 to 16 Mar
- +5.0%
- Discrete Alpha NAV, same period
- +64.3%
- Heavy add ahead of the backstop
- 2h 15m
- USDC low
- $0.87
Exhibit 1: Bitcoin, the news and Discrete Alpha’s trades ↓
Exhibit 1: Bitcoin, the news and Discrete Alpha’s trades
- UTC
- Bitcoin
- Fear & Greed
- Discrete Alpha NAV
Sources: news and opinions in Exhibit 4; Fear & Greed Index from alternative.me; price and NAV from Discrete Alpha. Times in UTC.
Why Discrete Alpha could act here
Most of the market is driven by emotion. When bad news keeps coming, people panic: they either act too early and buy halfway down, or freeze when the real opportunity finally arrives.
Discrete Alpha processes market data in depth. In effect it sees the whole market at once, including directions and angles most participants cannot see. Its greatest edge is finding the turn in liquidity inside the market before the news drives the price.
Here Discrete Alpha bought with size at the height of the bank run. With the Treasury Secretary ruling out a bailout and Ackman warning about Monday, it added heavily 2 hours 15 minutes before the backstop. We did not know a rescue was coming that Sunday night. The turn had already happened in the market.
We do not forecast news. When a headline lands we see it when everyone does. The difference is that we are not pushed by it.
Exhibit 2: When to act
| Entry (UTC) | Entry price | Further drop | At 16 Mar |
|---|---|---|---|
| Too early: buy after Silvergate3/9 00:00 UTC | $21,695 | −9.6% | +11.9% |
| Discrete Alpha: heavy buy in the run3/9 21:00 UTC | $20,098 | −2.4% | Close long @ $20,800, +3.4% |
| Discrete Alpha: heavy add before the backstop3/12 20:00 UTC | $20,770 | 0.0% | Close long @ $24,400, +17.4% |
| Too late: wait for the backstop3/13 00:00 UTC | $21,986 | −0.1% | +10.5% |
| Too late: chase $25,0003/14 12:00 UTC | $24,747 | −2.5% | −1.9% |
The early and late rows are hypothetical longs. Waiting for the backstop meant paying $1,200 more than Discrete Alpha; chasing $25,000 was a loss by 16 March.
Source: Discrete Alpha.
Exhibit 3: The trades in detail
| Open (UTC) | Action | Close | Worst move | Price move | Account | Ahead of news |
|---|---|---|---|---|---|---|
| 3/9 21:00 UTC | Heavy long @ $20,100 | Close long @ $20,800 3/12 | −2.4%（acct −8.2%） | +3.4% | +11.4% | 73h (the backstop) |
| 3/11 03:00 UTC | Add long @ $20,500 | Close long @ $24,300 3/14 | −3.1%（acct −1.4%） | +18.5% | +8.2% | 43h (the backstop) |
| 3/12 20:00 UTC | Heavy add long @ $20,800 | Close long @ $24,400 3/15 | 0.0%（acct 0.0%） | +17.4% | +39.2% | 2h (the backstop) |
Worst move is the most adverse price while the trade was on (account impact in brackets). Account return is measured on the account at entry; together, NAV rose 64.3% from 1 to 16 March.
Source: Discrete Alpha.
Exhibit 4: News, opinions and trades, in order
Sources: original articles (headlines as published, linked); Discrete Alpha.