Besides dangling the opportunity to get rich quickly, one of the biggest attractions for crypto traders was the ability to profit from wild price swings. Now with volatility all but gone — at least for now — both professionals and amateurs are altering their strategies as the crypto winter drags on.
Besides dangling the opportunity to get rich quickly, one of the biggest attractions for crypto traders was the ability to profit from wild price swings. Now with volatility all but gone — at least for now — both professionals and amateurs are altering their strategies as the crypto winter drags on.
A volatility gauge for Bitcoin has dropped in recent days to its lowest level since April, reaching 61 on Friday. That’s a far cry from the 140 it hit in May amid the collapse of the Terra stablecoin ecosystem. After surging to an all-time high of almost $69,000 in November, the largest digital asset by market value has been trading in a narrow range of around $20,000 since June.
Which begs the question: what exactly are crypto traders and investors, accustomed to the twists and turns of the asset class, doing now to make money?
Bloomberg News talked to a number of investors and traders about what they’ve been doing to survive the chill. Here’s a by no means complete list of recent strategies:
Selling Options
Julian Koh, co-Founder and CEO of Ribbon Finance, a structured investment products protocol for DeFi, says his firm’s seen “increased demand to sell options,” which can make money in a sideways market. Ribbon over the past month reached $100 million in total value locked (a crypto term to denote funds deposited in a project) from $70 million, and its options vaults are “doing well in this environment,” Koh says.
“Basically it’s a way for people to express the view that markets will continue to be flat and still make money,” he added.
Staking
Steven McClurg, co-founder and chief investment officer at digital-asset fund manager Valkyrie Investments, has been risk-off for most of the year. But he says Bitcoin’s a buy whenever it hits between $17,000-$18,000. “That’s when we’re buying. We’re waiting for those opportunities,” he said in an interview. But he’s also seeing “good opportunities” with staking certain assets. Avalanche, for instance, is a token he favors because it took a big hit earlier in the year. Buying it and staking it can earn 8% currently.
Still, given how uncertain things have been, McClurg has moved some of his firm’s assets into cash. “Sometimes doing nothing is a great strategy,” he says. Some of his strategies are more than 50% in cash. That could mean straight-up, old-fashioned cash, though it could also include a stablecoin like USDC or Gemini token.
Playing the Long Game
With where Bitcoin’s currently trading, it makes sense to go long, according to Zaheer Ebtikar, portfolio manager at crypto fund LedgerPrime. “The market factors I look at tell me that a lot of people are positioned in the opposite way, so I think the expected value is for me to go long,” he said.
He’s noticed the “vol crush” in the market, which he likened to Bitcoin’s last halving event in 2020. But at some point, volatility will get “super attractive, the range will break and vol will surge again.”
“This makes it pretty attractive to get long volatility because then you can make money if the range breaks if you think there’s another catalyst,” he added.
‘Distressed-Asset Market’
One of the side effects of the crypto downturn has been that lots of DAOs — decentralized autonomous organizations that allow holders to vote on different proposals — sitting on treasuries that are “in distress,” says Michael Safai of proprietary trading firm Dexterity Capital, meaning that their prices are beneath their treasury value.
“The game then is, Hey, can I convince the rest of the DAO to liquidate the treasury and then pay it out? And if I do that, the liquidation value is going to be greater than the price I’m paying of the token,” he said on a recent episode of Bloomberg’s “What Goes Up” podcast. “And that’s because crypto prices are sometimes irrational,” he said, adding that he’s seen this happening recently, though his firm has not done anything like this.
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