How the 'Big Short DAO' Won by Betting Against the Market

A crypto trader with the Twitter handle @GiganticRebirth sent a warning to his following of over 85,000 followers in late November.

He wrote, "High confidence interval that we're late in the cycle [and that cycles still exist]." "If you've achieved your freedom, make sure you keep it."

@GiganticRebirth, also known as GCR (acronym for Gigantic-Cassocked-Rebirth), claimed he was becoming increasingly gloomy on the cryptocurrency market, which had recently completed a 20-month bull run with no indications of slowing down.

While others predicted "a new crypto supercycle" or "bitcoin to $100K," GCR was plotting a different, contrarian trade: a large short, or a large wager against inflated altcoins, which would result in significant profits if his negative forecasts came true.

He claims to have put together a sprinkling of part-time crypto experts, ranging from a professional poker champion to a medical student, to pull off the deal. They communicated their results in a Discord channel and traded privately.

At the height of the crypto craze last November, GCR claims to have shorted roughly 30 different coins across numerous platforms. He shared an image of a trading dashboard from the FTX cryptocurrency exchange in January, reportedly showing large winnings from the gamble.

And, despite his aversion to revealing his actual name, he now want to share his experience.

In a phone interview with CoinDesk, GCR said, "The market consensus is that no one anticipated this coming." "I saw it coming and prepared myself."

Over the last 13 years, the cryptocurrency business has produced millionaires who were early adopters of bitcoin and stayed on to the commodity while its value climbed inexorably.

Timing these quick market cycles has proven even more difficult in the famously volatile realm of cryptocurrency. Indeed, it's impossible to say if winning deals can be repeated in the future.

The crypto market capitalization plummeted from a high of $3.1 trillion in November to $1.7 trillion in late January, virtually wiping off half of its value. The fall began in late 2021 and lasted through January. It's difficult to break even during a market slump; prospering is even more difficult.

GCR's story also provides a glimpse into the strange world of crypto markets, where individual traders occasionally band together to bet on unpredictable asset values in the hopes that their collective judgement is correct.

A CoinDesk writer spoke with GCR and several of his accomplices via phone conversations, Telegram messages, and Discord discussions to verify major portions of his claim. Almost all of them want to be recognized solely by their pseudonymous Twitter and Discord nicknames, rather than their true identities. GCR, on the other hand, has a following, as indicated by the high five-figure Twitter following he has amassed in the last year. He also routinely appears on the FTX exchange's Top 100 Traders leaderboard, where users are ranked by profit and loss under the alias Gigantic-Cassocked-Rebirth.

Here's the story of how one independent crypto trader appears to have forecast last year's market high, cooperating with a motley crew of alpha hunters, with faint echoes of Michael Lewis' book (made into a popular movie) about Wall Street misfits who bet against the frothy U.S. housing market.

The Bitcoin ETF market is open for business.

It all began in October, when a group of crypto traders convened in a Discord chat to discuss one of the year's most important market catalysts: whether the US Securities and Exchange Commission (SEC) would approve an eagerly awaited bitcoin futures exchange-traded fund (ETF).

They could be able to profit from a rise in bitcoin's price if they can identify and absorb the decision minutes, if not seconds, ahead of the rest of the market.

The group of pseudonymous partners – they didn't divulge their true identities on Discord – spent days reading obscure regulatory papers and creating web-scraping bots in preparation.

A web-scraping bot pings the Discord group on Oct. 15, 2021, at 4:15 p.m. ET, as soon as an announcement is made: A new SEC filing for the Proshares Bitcoin ETF has recently been published.

The good news is that it has been authorized (or technically, not opposed). The bot alert provided the group ample time to acquire bitcoin before the rest of the world had a chance to comprehend the good news. Bitcoin's price jumped from $57,100 to almost $59,000 in an instant.

A hedge fund that is "decentralized."

RebirthDAO, a "decentralized autonomous organization" formed by GCR, was the name of the team behind the ETF experiment.

A DAO is a decentralized organization supported by a token that grants voting rights in most blockchain-related topics; this was actually simply an informal group that gathered in a Discord channel.

GCR told CoinDesk in a series of phone conversations and Telegram chats, "The objective was to build a decentralized hedge fund." "A gathering place where individuals might come together to search for alpha."

The extra returns that some investors want above and beyond market returns, known as beta, are referred to as alpha. The chase frequently relies on customized techniques; alpha is tough to come by in both crypto and regular financial markets, and trade secrets are jealously guarded.

In a Discord chat with CoinDesk, Discord user fungible0x, a member of the group who works as a liaison between GCR and the moderators, said, "GCR had informed me early on that DAOs were going to transform the market." "He understood there were many great brains to cooperate with in crypto from the start. For that type of space, he envisaged a vacuum."

Forecaster GCR, the brains of RebirthDAO, consistently scores high on the FTX Top 100 Traders by PNL, also known as the "FTX Leaderboard."

He claims the pseudonym was a randomly created FTX login that he has kept throughout the years.

GCR momentarily changed his display name on the FTX Leaderboard to a Gmail address and then spoke with CoinDesk via email using that account to establish he was the same trader as listed on the FTX Leaderboard.

The leaderboard is a who's who of the crypto industry's best traders, as well as a scorekeeper for the FTX exchange's 100 most successful trading accounts; reaching the cut is regarded an amazing effort. Three Arrows Capital, Three Arrows Capital, Three Arrows Capital, Three Arrows Capital, Three Arrows Capital, Three Arrows Capital

GCR has garnered a cultish army of over 85,000 Twitter followers since mid-2020. Speculative retail "copy-traders" who trade according to his suggestions have flocked to the account.

His tweets have covered anything from theses on shorting frothy metaverse tokens to predicting the SHIB run and other dog-coin events.

Prior to bitcoin, GCR says he learned his trade on the prominent betting site PredictIt, where he traded political prediction markets.

In addition to market predictions, his political tweets have included anything from accurately anticipating Supreme Court Justice Stephen Breyer's retirement to betting on French Presidential candidate Valérie Pécresse's underdog race.

Su Zhu of Three Arrows Capital has praised GCR's contrarian market recommendations since he switched to cryptocurrency.

When questioned about his trading experience, GCR remarked, "I didn't take a single day off for three and a half years." "You're going to have to give up everything."

In a phone conversation with CoinDesk, RebirthDAO member and Discord user Pxeo described GCR as a "benevolent assassin." "He's great at slicing through stuff to get to the bottom of things." On Twitter, there are no better market sentiment accounts."

Signs of froth

GCR tweeted out his most contentious forecast ever on Nov. 22, just 12 days after bitcoin peaked at $69,000 but at a time when other analysts were still predicting a $100,000 price by year's end.

He was "back and shorting" the market at the same time as bitcoin and Ethereum's ether hit fresh all-time highs and some crypto traders predicted that a "supercycle" would push prices further higher.

"You had all of the froth indicators." In November, the entire market cap of all crypto was above $3 trillion," according to GCR. "There was a high point of exhilaration and faith in endless cycles." It was rather radical at the time."

GCR had a strong belief in seasonality in addition to sensing a bleak macro climate. Bitcoin and other cryptocurrencies began sliding in December 2017, right before the previous lengthy bear market, and by early 2018, it had become a full-fledged disaster.

The indicators led to a clear new move for GCR: shorting the market.

He claimed that betting against overbought cryptocurrencies, which may lose up to 90% of their value in a bear market, would be the greatest way to benefit from the impending sell-off.

"We expected the Fed to express a more hawkish attitude," GCR stated. (A more aggressive Fed strategy to taming inflation would undercut bitcoin's "digital gold" thesis and/or prompt investors to sell the cryptocurrency as a risk asset.) And whither bitcoin goes, so does the rest of crypto.)

"Everyone had been stating for the entire year of 2021 that they were going to sell everything and lock in profits," GCR said. "Once the sell-off began, individuals came up with increasingly complicated explanations for why the cycle would continue."

RebirthDAO set its sights on a new strategy after the success of the ETF project: a large short.

"Everyone put down their work and began researching what he provided as the finest option," fungible0x stated.

Hunters of alphas

Despite the fact that RebirthDAO has approximately 3,000 users, only 50 to 60 have gained the special "Alpha" classification, which grants them access to exclusive chat rooms and conversations where profit-generating trading ideas are traded.

To be accepted, candidates must "audition" by revealing some of their profitable trading methods with a small group of DAO administrators, who evaluate candidates based on the strength of their alpha. (There is no need to pay.)

"During the ETF project, it became quite evident that there were certain superstars," fungible0x stated, adding that the DAO was closed to new members owing to capacity concerns. "We needed to concentrate our efforts." The most effective method to do so was to form a 'alpha' group."

GCR gave CoinDesk access to the group's Alpha conversations (without an audition). Several trading topics, including "The Big Short," "Macro Task Force," and "News Trading," as well as several web-scraping bots, were discussed in the Discord channels.

Members' backgrounds range from previous poker champions to medical students, according to the group's "Introductions" channel, with many having trading expertise in crypto or traditional financial markets.

Pxeo, an Alpha member of the group, stated, "The spirit is about sharing and pushing the group to see if we can literally forecast what would happen to the market via our abilities to study." "By working together, we were able to get a lot more information."

The Big Short

While GCR gave a targeted list of tokens and a central trading thesis, the analysts would conduct their own research on the unlocks before reconvening to resolve any discrepancies.

"Token unlock timetables are remarkably public, but extremely ambiguous," noted Pxeo, a Big Short contributor. "In most cases, they're basically a non-interface graph." You should check with the project developers."

Alpha members were urged to interact with team members allocated to the coins in issue to get actual numbers, which frequently differed from data on sites like CoinGecko or CoinMarketCap.

They also used blockchain analysis to track project treasury wallets, liquidity provider wallets, and project team wallets, among other things.

"On the project side, you can already tell that an unlock is coming, but you don't know when or how many tokens," fungible0x explained. "To put together the distribution of the specific token in issue and verify the unlock timetable, we looked at everything on-chain and off-chain."

The researchers generated a list of roughly 30 highest-conviction tokens to brief after weeks of analysis.

"Because there were so many coins, it was a big effort," Pxeo explained. "However, in the first two to three days, it became clear that the greatest approach to short was through the Solana ecosystem."

SERUM, STEP, SOLENS, OXY, and FIDA were among the Solana-based tokens detected by Px eo.

Pxeo said, "The metaverse currencies were likewise pure rubbish." "They didn't have any infrastructure." "It was blatant."