Conviction & Collateral

Chapter OneMark To Market

You want to know what conviction actually costs?

Not belief. Belief is free. Anybody can believe. My mum believed in the Leeds bus timetable for thirty-one years and it never once cost her a penny beyond the fare.

Conviction is different. Conviction is belief with your own money behind it, and the price of it is printed on a screen every second of every day, in green when you’re right and in red when you’re not, and there is no version of the world where you get to look away.

In November 2021 I was very, very green.

Bitcoin printed sixty-nine thousand dollars on the tenth of that month and I had been long since eleven hundred. I ran the Bitcoin desk at Vertex Capital, third floor, Mayfair, forty-one screens and a coffee machine that had never once been descaled. Every man on that floor who had spent four years calling me a religious lunatic came past my desk that week to tell me they’d always said I was early rather than wrong.

I let them say it. I was thirty-two years old and I had never in my life been so certain of anything.

You should know where the certainty came from, because it is the load-bearing wall of everything that follows.

I bought my first Bitcoin in April 2013 with four hundred and twenty pounds I did not have, on a website that has since been raided, from a laptop in a shared house in Hyde Park, Leeds, with a damp problem the landlord described in writing as condensation. I was twenty-three. I had a two-two in mathematics and a job doing pricing for a mid-market insurer where the most interesting thing that happened in a year was that they changed the coffee.

The price went to two hundred and sixty dollars and then to sixty-eight. It took eleven weeks. I lost eighty per cent of everything I had and I did not sell, and the not-selling was not courage, it was that I had no plan for what to do afterwards if I was wrong. So I sat in it. And it came back.

That is the whole disease, by the way, and I can give it to you in one sentence: the first time I was rewarded for refusing to cut, I was not being clever. I was being paralysed. But the market pays out on outcomes and not on reasons, and so the paralysis got a bonus, and by 2017 I could no longer tell the two apart.

Eleven years of that. Every drawdown a test I passed by doing nothing. Vertex hired me in 2019 because I could price options on an asset most of the City still thought was a joke, and I built that desk from two screens and a Bloomberg terminal nobody else wanted into the largest single book on the third floor.

The third floor of Vertex was a hundred and ten people in one room and no walls anywhere, on purpose, because Julian Ashcroft, who ran the place, believed that a man will not lie about his P&L in front of an audience. He was right about that and wrong about almost everything else.

I sat at the north end with four traders and a quant. Marcus Weir, who had come off the LSE grad scheme, sat to my left and tapped a silver Rolex against the desk when he was nervous, which was most days. The equities lot were at the far end pretending not to look at our numbers. In the middle was a coffee machine with a laminated sign on it that said PLEASE DESCALE ME and had said it for two years.

Which is exactly when Anjali Bhatt raised my margin requirement.

She did it at 09:14 on a Thursday, by email, copied to the risk committee and to nobody else, in four sentences with no adjectives in them. Concentration limit. Single-asset exposure. Effective Monday. Please confirm receipt.

I went and found her.

Vertex put risk at the far end of the floor behind a glass partition, the way you’d house something that bites. Anjali sat at the near end of it with two monitors and a mechanical keyboard and a mug that said WORLD’S OKAYEST RISK OFFICER, which I had assumed for a year was a joke and later worked out was not.

“You’ve cut me,” I said.

“I’ve sized you.” She didn’t look up. “There’s a difference and you know it.”

“I’m the most profitable book in this building.”

“You’re the most concentrated book in this building. Those aren’t the same sentence, Dan, they just happen to be true at the same time this month.”

I want to be honest about what I felt, because the whole point of writing any of this down is that I stop lying about it. What I felt was insulted. Physically insulted, in the chest, the way you feel it when someone puts a hand out to stop you crossing a road you were always going to cross safely.

“You don’t understand the asset,” I said.

She looked up then.

Anjali Bhatt was thirty-four, from Leicester, and she had a way of holding still that made you aware of how much you’d been moving. Dark eyes, a heavy fall of black hair she wore up and had never once, in the entire time I knew her, let down in that building. Grey suit. No jewellery except a thin gold chain that lived under her collar.

“I understand it better than you do,” she said, “because I don’t want anything from it.”

“That’s a line.”

“It’s an accounting fact. You need Bitcoin to be a religion because you have eleven years of your life in it and no other story that makes those years mean something. I need it to be a number, because if I’m wrong about the number, four hundred people in this building don’t get paid in March.” She turned her screen towards me. “Do you want to see the number, or do you want to keep being insulted? You can only pick one, I’ve got a committee at ten.”

I looked at the screen.

I have thought about that screen a great deal since.

It wasn’t my position. My position I knew to the satoshi. It was my hedge. I ran a short against a basket of alt-coins through a counterparty called Halberd Markets, a Dubai outfit that gave better terms than anybody and had never in three years given me a reason to ask why.

Anjali had pulled their filings. Or what passed for filings. Two entities, one address, and a chain of collateral that went out of Halberd, through a lending desk in Singapore, and came back into Halberd as the same collateral wearing a different coat.

“That’s rehypothecation,” I said.

I should stop and say that word in English, because it is the sort of word the industry uses precisely so that nobody outside it asks a follow-up question.

When you post something as security for a loan, the lender is meant to hold it. Rehypothecation is when the lender takes the thing you gave him and uses it as security for a loan of his own. Then that lender does the same. Your one asset ends up standing behind four different promises at once, and every one of those promises is fine, right up until two of them come due on the same afternoon.

Imagine you leave your car with a garage as a deposit. The garage borrows against your car. The bank that lent to the garage borrows against the same car. Nobody has done anything illegal, everybody’s paperwork is in order, and there is still exactly one car.

“That’s rehypothecation of your own hedge,” Anjali said. “Congratulations. If Bitcoin falls, your short pays out, and the entity paying you out is holding your Bitcoin as the collateral for the payment.” She took the screen back. “You’re not hedged. You’re insured by a man who set fire to the building.”

“Halberd’s good for it.”

“Halberd is good for it while the price goes up. That’s not a hedge. That’s a correlated bet you’ve been calling a hedge for three years because it makes you feel like a grown-up.”

I said something then that I’m not going to write down, and she took it without a flicker, and I went back to my desk and closed the email and traded through the afternoon with my hands shaking slightly on the keyboard in a way I told myself was caffeine.

At six o’clock the floor emptied out towards the pub.

When I got back from the toilets there was a single sheet of A4 on my keyboard. A printout of my own exposure, the numbers I’d looked at nine thousand times, and one figure in the third column circled in blue biro.

No note. No initials.

I stood there for a long time trying to work out what that number was, because it wasn’t my liquidation price, and it wasn’t my margin, and it wasn’t any level I had ever plotted on any chart in eleven years.

I put it in my jacket pocket. I did not go to the pub.

Chapter TwoUnrealized

By the third week of January the price was thirty-five thousand dollars and I was still in the office at three in the morning.

That’s the part nobody tells you about a drawdown. It isn’t dramatic. A crash is dramatic. A crash is four hours and a story you tell for the rest of your life. A drawdown is eleven weeks of waking up at 4:50 without an alarm, checking a number on your phone in the dark, and finding that it has taken one more small bite out of you while you slept.

Sixty-nine to fifty-eight. Fifty-eight to forty-six. Forty-six down through the forties in a long grinding slide that had no single day in it bad enough to be a reason.

I did not cut. I want that on record because everything after it depends on it. I did not cut, and I did not hedge properly, and twice in December I added, because I had spent eleven years being the man who added, and the entire architecture of who I was had been built on the observation that adding had always worked.

The second time I added was the fourteenth of December, at 07:40, from my kitchen, before I had eaten anything.

I remember the exact morning because the Vertex Christmas party had been the night before, at a place off Berkeley Square with a sculpture of a reindeer made of what the caterers insisted was chocolate, and Marcus had got into an argument with the equities desk about whether Bitcoin was a currency, and I had heard my own voice from about four feet outside my body explaining to a woman from operations that a forty per cent drawdown was historically normal and in fact healthy.

I watched myself say it. That’s the thing. I was standing there in a rented dinner jacket saying a sentence I had said eleven times that month and I could hear that it had stopped being an analysis and turned into a liturgy, a set of words you say in a certain order to make a feeling go away.

Anjali was on the other side of the room with the compliance lot, in a dark green dress, with her hair up.

She did not come over. At about eleven she left, and on her way past our end of the table she said “Merry Christmas, Dan” without stopping, in a voice with absolutely nothing in it, and I stood there holding a glass of warm champagne and understood that she had already run the numbers on what was going to happen to me and had decided not to spoil the party.

I bought more the next morning. Four hundred thousand pounds of it. It is the single stupidest thing I have ever done and I did it at a kitchen counter in eleven seconds, in my dressing gown, with a hangover, because the alternative was to sit with what I had worked out in that room.

I wrote at night. That’s the other thing. I had a document, thirty thousand words by then, that I told people was a book and was actually a defence, and I worked on it in the empty office because the empty office was the only place the numbers couldn’t reach me.

The office was not empty.

Anjali ran the overnight risk pack, which meant she was in that building from ten at night until the Asian close, three nights a week, in a jumper instead of the grey suit, with the same mug.

The first night neither of us spoke. The second night she said, “Your desk lamp’s the only light on this floor, it’s giving the cleaners the creeps.”

The third night she brought two coffees and put one down next to my keyboard without breaking stride, and did not stop, and did not speak, and was back behind the glass before I had worked out how to thank her.

The fourth night she stopped.

“What is it, actually,” she said. “The document.”

“It’s a book.”

“It’s a hundred and forty pages with no chapter breaks and a section called Why They Will All Be Wrong Again.” She had read it. Of course she had read it. Vertex ran document surveillance on every machine in that building and risk had the login. “It’s not a book, Dan. Books have readers in them. This has one reader and it’s you, and you’ve been arguing with him since October.”

“You went through my files.”

“I go through everybody’s files. It’s in your contract in a font you didn’t read.” She sat down on Marcus’s desk, which is where she sat, always, for the rest of that January. “I’m not going to apologise for it and you’re not actually angry. You’re embarrassed, which is different and much more useful.”

I closed the laptop.

“Say the thing,” I said. “You’ve been building up to a thing for four nights.”

“The thing is that I’ve read three of these.” She wrapped her hands round the mug. “Not yours. Three others, over eight years, at two firms. A man in a drawdown writes a long document explaining the market to itself. It’s always the same document. It’s always beautifully argued. And in every single case the man was liquidated before he finished it, and in every single case, the writing was the tell.”

“The tell for what.”

“That he’d stopped trading the position and started defending it.” She looked at me over the mug. “You cannot hedge a position with an essay.”

I want to tell you I took that well.

What I actually did was ask her what she’d know about it, in a tone I would give a great deal to have back, and she put the mug down on Marcus’s desk and told me.

Anjali Bhatt qualified as an actuary at twenty-four and went into risk at a fund in Mayfair that no longer exists, where in 2015 she flagged a currency position eleven times in nine weeks and was told eleven times that she did not understand the trade. It was a carry trade in Swiss francs, which is a bet that a central bank will keep a promise. On the fifteenth of January the Swiss National Bank stopped keeping it, and the position went through her firm the way a car goes through a bus shelter, and forty-one people lost their jobs on a Thursday afternoon including a woman on her team who was six months pregnant.

“I was right,” she said. “That’s the part I need you to hear. I was right eleven times in writing and it made no difference at all, because being right in an email to a man who has decided is not a risk function, it’s a diary.”

“So you started saying numbers.”

“I started saying numbers, once, and never moving them.” She picked the mug back up. “It costs me something every single time. I’d like you to stop assuming it’s free.”

I sat there in an empty office at two in the morning with a hundred and forty pages of my own voice on a closed laptop.

“You’re writing about me,” I said.

“I’m not.”

“There’s a section called The Bureaucracy of Doubt. It’s got my line in it. The one about the man who set fire to the building.” She sat down on the edge of Marcus’s empty desk. “You didn’t even change it.”

“It was a good line.”

“It was a good line about you.” She wrapped both hands round the mug. “Are you going to cut?”

“No.”

“Do you know why not?”

“Because I’m right.”

“That’s the answer you give the floor.” She let a silence sit there long enough that I looked up. “I’m asking at half two in the morning in an empty building. You can have a different answer if you want one.”

And here’s the thing. I had one.

“Because if I cut,” I said, “then the last eleven years were a trade. And I’ve been telling people they were a life.”

She didn’t say anything for a while. Then she said, “The number on the printout was the date.”

“It was a price.”

“It was a date. Read it again.” She got up, came round, and put a finger on my monitor. “That’s the point where your book stops being your problem and becomes the firm’s problem. It’s not a price level. It’s the day the risk committee stops asking you and starts telling you. I ran it out in December and it landed on the twenty-fourth of January.”

I looked at the calendar on my second screen.

“That’s Monday.”

“That’s Monday,” she agreed.

“Move it.”

“No.”

“Anjali. You wrote the model. You can widen the concentration band by four points and it’s April instead, and by April I’m right and none of this happened and you get to be the woman who kept the best book in the building alive.”

“Yes,” she said. “I can do all of that.”

“Then do it.”

“No.”

She was standing very close. Close enough that I could see she’d taken the chain off at some point in the evening, and there was a thin pale line where it had been, and I found that I could not look anywhere else on the entire floor.

“Why not,” I said. It didn’t come out as a question.

“Because the only thing I have,” she said, “the actual only thing, is that when I say a number, it’s the number. Not a starting position. Not a negotiation. The number.” Her voice had gone very quiet. “The day I move it for you is the day I’m just a woman on the third floor with opinions.”

“That’s not what you’d be.”

“That’s exactly what I’d be. And you would know it, and you’d be kind about it, which is worse.”

I said her name.

She said, “Don’t,” and did not move away.

We stood there. There is no other way to describe what happened, because nothing happened, and I have never in my life been so aware of the temperature of the air in a room. The building hummed. Somewhere on eleven a floor polisher went past.

Her phone went off on Marcus’s desk. The three-tone alert, the one that means a book has breached overnight, the one she had never in eighteen months let ring past the second tone.

It rang out.

She looked at it. She looked at me. And then she picked up her mug and went back down the floor to the glass partition without another word, and I stood in the dark next to my own desk with my heart going like a man half my age.

I did not sleep that night. At six I checked the price, the way I always did.

Thirty-three, four.

It had taken one more bite while I stood there.

Chapter ThreeForced

She did it on the Monday at 11:20, in the open, on the floor, with the desk watching.

That’s how it has to be done. That’s the whole design. A margin call in a private room is a favour, and a favour has to be repaid, and the moment risk starts trading favours you haven’t got a risk function any more, you’ve got a market in leniency. So it happens in the light, where everyone can see it, and where nobody afterwards can say there were terms.

She came down the floor with the printout and one of the committee behind her and she said it in about nine words. Concentration breach, forced reduction, sixty per cent by close, the firm executes if you don’t.

Marcus stopped typing. Dan-from-Leeds, head of the Bitcoin desk, four years of manifestos, getting his book cut in front of the whole third floor by a woman in a grey suit who did not raise her voice once.

Marcus, to his eternal credit, did not look up. He sat there with his hands on his keyboard and his eyes on a spreadsheet he was not reading, and afterwards he brought me a coffee from the machine without saying a word about any of it, and I have never told him what that was worth.

I said, “Understood.”

That’s all. One word. Eleven years and it took one word.

I sold it myself. I was not going to let the firm do it, because a firm liquidating your book does it with an algorithm that does not care what it prints, and I had spent four years telling that desk that how you exit is the only part of a trade you actually control.

It took four hours.

If you have never done it, I can tell you that the worst part is not the money. The worst part is that selling a large position properly is interesting. You cannot simply hit the button; you would move the price against yourself and lose another two per cent to your own impatience. So you work it. You cut it into pieces and you feed the pieces out across four venues, watching the book refill, taking the bid when the bid is there and standing off when it thins, and it requires your entire attention, and you are good at it.

I was extremely good at it. I have never traded better in my life than I traded on the afternoon I was destroyed.

Around two o’clock I noticed I had stopped feeling anything at all and had started enjoying myself, and that was the moment I understood what Anjali had actually taken off me. Not the money. She had taken the position, and the position was the thing that had been standing between me and every ordinary afternoon since I was twenty-one, and underneath it there was just a man who was quite good at his job.

At 15:52 I flattened the last of it and sat looking at a book that was flat for the first time in eleven years.

Nobody came over. There’s a courtesy to it. The floor gave me the twenty minutes and then Julian walked past and put a hand on the back of my chair and said, “Good exit,” which from him was a great deal, and went to his four o’clock.

Halberd Markets suspended withdrawals nine days later. If I’d still been carrying that hedge on the twenty-fourth I would not have been cut. I would have been finished.

I didn’t know that yet. On the Monday I only knew I’d been beaten in public.

I found her at eight, still in the building, in the meeting room at the back where the blinds don’t work.

“Say it,” she said.

“I’m not here to say anything.”

“Everyone comes and says it. You get about four days. Then you’re fine and you buy me a drink at Christmas and we both pretend.” She was leaning against the table with her arms folded and she looked, for the first time in eighteen months, tired. “So say it now and get it over with.”

“Thank you,” I said.

She went completely still.

“I’ve been reading Halberd’s terms all afternoon,” I said. “The collateral clause. The one you’d already read in November.” I put the folded sheet of A4 on the table between us, the one with the blue circle, which had been in the inside pocket of every jacket I owned for ten weeks. “You didn’t cut my book. You cut the only thing that was going to kill me, and you did it in front of forty people so that when it turns out you were right, nobody can say you did it as a favour to me.”

“That’s not why I did it in front of them.”

“No,” I said. “I know.”

The silence in that room had a completely different quality to the silence on the floor at half two in the morning. This one had a decision in it, standing in the middle of the carpet, waiting for one of us.

She said, “If you come round the table, I’m not going to stop you, and I want you to understand that I’ve thought about that all day and I’ve decided it anyway.”

I came round the table.

I did not touch her. I stopped about a foot away, which was near enough that neither of us could pretend the distance was accidental, and I said, “Not in this building.”

She let out a breath that was almost a laugh.

“No,” she said. “Not in this building.”

So we did the absurd thing that people in that situation do, which is that we went and got our coats separately, and rode down in the lift with a man from operations who talked the whole way about a leak on the second floor, and stood four feet apart on Curzon Street in January not looking at each other while I tried to remember how a taxi worked.

She lived in a flat off Amwell Street with a communal front door that stuck.

What I remember is not the choreography of it. What I remember is her hallway, and that she went to switch the light on and then didn’t, and that we stood in the dark of it with the streetlight coming through the fanlight above the door and neither of us moved for what felt like a very long time and was probably four seconds.

I remember that she took the pins out of her hair herself, holding my eye the whole way, because she had spent eighteen months not doing that in the building where I could see her and she was not going to have the first time be something that happened to her. It came down heavier than I had imagined it, and I had imagined it a great deal, and she watched me work out that she knew I had.

I remember her hands were not steady on the buttons of my shirt and mine were considerably worse on the zip at the back of that grey suit, and that we both stopped and started again and she said, into my mouth, this is the stupidest thing I have ever done, and then, in the same breath, don’t stop, in that order, and meant both.

I remember the grey jacket going over the back of a chair and missing the chair, and neither of us going after it.

I remember she got a hand into my shirt and flattened it over my heart, which was going like something in a trap, and held it there, and said, “There you are,” in a tone of genuine discovery, as if she had found the number she had been looking for since November.

I remember lifting her, and the small sound she made against my ear, and her ankles crossing behind me.

And I remember that at some point in it the whole eleven years went completely quiet in my head, all of it, the price and the manifesto and the four hundred thousand pounds at a kitchen counter, the first silence in that particular room since I was twenty-one years old.

That frightened me considerably more than losing the money had. It still does.

Then her bedroom door, and her hand flat on my chest pushing me back through it, and the thin gold chain still down on the hall table where she’d dropped it, catching the light from the street.

That’s where I’ll stop. Some of it stays mine.

In the morning she was up before me, at the kitchen table with a laptop, in a jumper, with her hair down and wet.

“What are you writing?”

“Conflict disclosure.” She didn’t look up. “Compliance, the CRO, and the chair of the committee. Effective immediately I can’t cover your desk. Someone else picks it up, and every decision I’ve made on your book since November gets reviewed by a person who wasn’t in the room.”

I sat down.

“They’ll review the margin call.”

“They’ll review everything.” She kept typing. “It’ll be clean, because it was clean. But there’ll be a file with both our names on it and it’ll follow me to the next place and the place after that, and there’s a certain sort of man on that committee who is going to enjoy reading it.”

“Anjali.”

“I’m not asking you to feel bad about it.” She stopped typing then and looked at me and there was something almost like amusement in it. “I’m just showing you the number before I do the thing. It’s a habit.”

I thought about eleven years. I thought about a document on my hard drive called Hard Money, a hundred and forty pages of a man explaining why he could not possibly be wrong, with no chapter breaks in it, because a man who is arguing does not stop to let anyone else speak.

“There’s a version of this where you don’t send it,” I said. “Nobody knows. It was one night. You cover my desk for another four months and you get the promotion in June that you have earned twice over, and in a year it’s a thing that happened.”

“Yes.”

“You’ve thought about that version.”

“I thought about it at four o’clock this morning while you were asleep, in some detail, and I want you to know that I got quite a long way into it.” She turned the laptop a few degrees. “And then I thought about being the woman who says a number once and never moves it, and about how that is not a personality, it’s a load-bearing thing, and how the day I move it in secret is not different from the day I move it in public. It’s just quieter.”

“Send it,” I said.

She sent it.

The review took nine weeks. It found nothing, because there was nothing, and the finding was published in a single paragraph in an annual compliance summary that eleven people read.

The file exists. It followed her, exactly as she said it would. In 2023 a man on an interview panel at a fund I will not name asked her about it in the third round, in a room with two other people in it, and she answered him in about forty words, and did not get the job, and has never once said to me that she regretted the email.

She got a better one eight months later at a firm whose head of risk had read the Halberd file and knew precisely what it meant that a concentration limit had been enforced in November 2021 against the largest book in the building. That is the thing about doing it in the light. It takes longer to pay and it pays to the right person.

Then she closed the laptop and said, “So what do you actually do now? Because you’re flat, and you’re thirty-two, and as of about ninety seconds ago you’re the interesting item in someone’s compliance file.”

Out the window the January light was coming up grey over the rooftops, and somewhere across the city a floor full of people who were very sure of themselves were switching on forty-one screens each.

“I’ve got about eight hundred grand and no position,” I said. “For the first time since I was twenty-one I haven’t got an opinion I need the world to agree with.”

“That sounds like nothing.”

“It’s the only thing I’ve ever had that couldn’t be liquidated.” I took her wrist. “Ask me the question you actually want to ask.”

She asked it.

I’m not writing that one down either. But I said yes, and I have not been long a single satoshi since, and eleven months later, when the whole thing came apart and took Vertex’s best year with it, we were the only two people I knew who slept.