Stockholm (HedgeNordic) – Three Norwegian friends, who have known each other since their school days and pursued their master’s studies at the same university, have come together to launch an algorithmic hedge fund that trades Bitcoin derivatives. The founding trio launched Anna Fund in mid-2023 and successfully capitalized on the Bitcoin rally since October of last year.

Ole Christian Wendel and Martin Helgheim, who pursued a joint engineering and finance program with a specialization in quantitative finance, wrote their master’s thesis in 2018 on the potential of algorithms to capture momentum in the cryptocurrency market. This research laid the groundwork for what would later become Anna Asset Management. The third co-founder, Ole Nordviste, holds a master’s degree in computer science with a specialization in artificial intelligence, serving as the Chief Technology Officer (CTO) of Anna Asset Management.

“Although we explored the opportunity of starting an algorithmic hedge fund in the crypto space back in 2018, we decided to start other corporate jobs as the regulatory landscape for such a fund was challenging in Norway at the time,” recalls Ole Christian Wendel, who serves as the CEO of Anna Asset Management. Ole Nordviste served as CTO at digital-physical healthcare operator Dr. Dropin, while Ole Christian and Martin Helgheim ventured into management consulting for three to four years at BCG and KPMG, respectively.

“…we explored the opportunity of starting an algorithmic hedge fund in the crypto space back in 2018…”

Ole Christian Wendel

The starting point of Anna Fund stemmed from the belief that the Bitcoin market is dominated by investors who buy and sell solely based on recent price developments. “Our core investment hypothesis is quite simple: the world is unpredictable, but people are not,” notes Wendel. “If you can find an asset that has fewer ties to the complex nuts and bolts of the world we live in, but rather depends on fear and greed among the investors, it is likely easier to predict the next move,” he elaborates. “This is our motivation for entering the crypto space, and Bitcoin in particular.”

The Algorithm

In contrast to traditional assets such as stocks or bonds, Bitcoin lacks the typical characteristics necessary for valuation using conventional methods. Bitcoin does not generate any earnings or cash flows, pay dividends, or offer yields. While Bitcoin may share similarities with commodities, which are often cyclical and notoriously challenging to value, valuing Bitcoin presents an even greater challenge. “Bitcoin lacks a universally agreed upon method of valuation and that makes it very difficult to point the real-world value drivers for Bitcoin,” notes Martin Helgheim, co-founder and COO at Anna Asset Management. “Ultimately, we believe the ambiguity in valuation leads to a situation where a substantial portion of investors in the market base their decisions to buy or sell simply on the price development itself.”

“Ultimately, we believe the ambiguity in valuation leads to a situation where a substantial portion of investors in the market base their decisions to buy or sell simply on the price development itself.”

Martin Helgheim

For that reason, the founding trio of Anna Fund has focused on developing predictive models using solely historical price and volume data. After acknowledging that investors trade Bitcoin primarily based on price movements, “the next step is to identify what triggers this bullish and bearish momentum, for which we have in-house simulation tools to iterate through market data minute-by-minute over the last 10 years,” explains Ole Nordviste, who serves as the CTO at Anna Fund. 

Anna Fund employs inverse perpetual Bitcoin futures to execute its momentum strategy. Perpetual futures contracts lack an expiration date and are designed to mirror the spot price. “The ‘inverse’ aspect implies that the contracts use Bitcoin as base currency, settlement, and collateral while being quoted in U.S. dollars,” explains Wendel. Anna Fund opts for these contracts for two primary reasons. “Firstly, it’s a highly liquid market with low commission,” notes Helgheim. “Secondly, it enables us to optimize our exposure in a way that allows us to reduce our cost of trading significantly.”

“Our aim is to catch 2-12-week momentums, up or down.”

Ole Nordviste

The algorithm is intricately designed across multiple layers on various timeframes, considering market bias and trends to create position recommendations. “However, the underlying concept is simple,” says Nordviste. The algorithm assesses whether “the current situation resembles past scenarios that have shown statistical significance in predicting a bullish or bearish momentum, which may trigger an action,” explains the CTO. “Our aim is to catch 2-12-week momentums, up or down,” further adds Nordviste. “Our analysis shows that this is the sweet spot for our strategy, as we can get rewarded handsomely when the market starts moving while being able to have a tight risk management regime on our positions.”

Bitcoin Rally and Main Risks

Launched in mid-2023, Anna Fund has successfully capitalized on Bitcoin’s rally since October, with 44 percent of Bitcoin’s gains occurring in February alone. This upward trend continued into March as Bitcoin surpassed the $72,000 mark for the first time, resulting in gains of nearly 70 percent for the year. “What we have seen so far with the spot ETF approval in January this year is a bump in demand in the spot market and an increase in volume across the board,” explains Ole Christian Wendel. “More importantly, the dynamics of the market appear to be similar to prior bullish periods with highly trending behavior followed by quick turnarounds,” he warns.

“What we have seen so far with the spot ETF approval in January this year is a bump in demand in the spot market and an increase in volume across the board.”

Ole Christian Wendel

In February alone, Anna Fund recorded a 63 percent gain, reflecting the use of leverage within the strategy. “Our product has a high return potential, which naturally comes with a corresponding risk profile,” notes Wendel. One of the primary risks involves the accuracy of their algorithm in anticipating and capturing shifts in momentum. “There is always a risk that the algorithm is wrong when placing a long or a short position,” acknowledges Wendel. “In a highly volatile market like Bitcoin, coupled with up to 2X exposure that many of our positions utilize, there is considerable risk of losing money on a trade.”

“Our product has a high return potential, which naturally comes with a corresponding risk profile.”

Ole Christian Wendel

However, the team relies on a multitude of mechanisms that may trigger a position closure. Anna Fund relies on a server-side stop-loss at the exchange, ensuring automatic closure of the position to prevent further losses. “These mechanisms usually kick in quite early, reflecting our 4.8 percent average loss on losing trades since the fund’s inception,” says Helgheim. “However, if none of these triggers a close, we have an absolute floor of 15 percent (30 percent at risk with maximum leverage) adverse price move,” he elaborates. “To date, we have never seen this being triggered either live or in simulations, but it serves as a protection of the potential downside on any position.”

Additionally, there are risks associated with trading on unregulated exchanges. “There is a heightened risk of using an unregulated crypto exchange as a counterpart,” points out Helgheim. In light of the FTX collapse in 2022, this concern remains on top of investors’ minds. The team behind the Anna Fund considers two main risks: the exchange being hacked or becoming insolvent. 

“To mitigate the hacking risk, we only work with the market leader that has a strong track record on security and has refunded customers in the few breaches that have occurred historically,” says Helgheim. To address solvency concerns, the team requires exchanges to provide a public and regularly updated proof of reserves statement, confirming sufficient reserves to support depositors’ balances. The team also monitors the net flow of assets in and out of the exchange daily to detect a potential bank run at an early stage. “In case concerns are raised, we have backup accounts at regulated exchanges where we can transfer our assets in Bitcoins within an hour, 24/7/365.”