Here’s what crypto traders are doing with the volatility gone
(Bloomberg) — Besides dangling the get-rich-quick opportunity, one of the biggest attractions for crypto traders was the opportunity to profit from wild price swings. Now with volatility almost gone – at least for now – professionals and amateurs alike are changing their strategies as the crypto winter wears on.
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A volatility gauge for Bitcoin has fallen in recent days to its lowest level since April, hitting 61 on Friday. That’s a far cry from the 140 it hit in May amid the collapse of the Terra stablecoin ecosystem. After rising to a record high of nearly $69,000 in November, the biggest digital asset by market capitalization has been trading in a narrow range of around $20,000 since June.
Which begs the question: what are crypto traders and investors, accustomed to the vicissitudes of the asset class, doing now to make money?
Bloomberg News spoke to a number of investors and traders about what they have done to survive the cold. Here is a by no means complete list of recent strategies:
Sales options
Julian Koh, co-founder and CEO of Ribbon Finance, a structured investment product protocol for DeFi, says his firm has seen “increased demand to sell options,” which can make money in a sideways market. Ribbon in the past month reached $100 million in total value locked (a crypto term to denote funds put into a project) from $70 million, and the option vaults “are doing well in this environment,” says Koh.
“Basically, it’s a way for people to express the view that the markets will continue to be flat and still make money,” he added.
Staking
Steven McClurg, co-founder and chief investment officer of digital-asset fund manager Valkyrie Investments, has been risk-off for most of the year. But he says Bitcoin is a buy when it hits between $17,000 and $18,000. “That’s when we buy. We are waiting for these opportunities, he said in an interview. But he also sees “good opportunities” in investing in certain assets. Avalanche, for example, is a symbol he favors because it took a big hit earlier in the year. Buying it and betting it can earn 8% currently.
Still, given how uncertain things have been, McClurg has shifted some of the firm’s assets to cash. “Sometimes doing nothing is a good strategy,” he says. Some of his strategies are more than 50% in cash. That could mean plain, old-fashioned cash, though it could also include a stablecoin like USDC or the Gemini token.
Playing the long game
With where Bitcoin is currently trading, it makes sense to go long, according to Zaheer Ebtikar, portfolio manager at crypto fund LedgerPrime. “The market factors that I’m looking at tell me that a lot of people are positioned the opposite way, so I think the expected value is for me to go long,” he said.
He has noted the “vol crush” in the market, which he compared to Bitcoin’s most recent halving event in 2020. But at some point volatility will become “super attractive, the range will break and volume will rise again.”
“This makes it quite attractive to get long volatility because then you can make money if the range breaks if you think there’s another catalyst,” he added.
“Emergency Market”
One of the side effects of the crypto downturn has been that many DAOs — decentralized autonomous organizations that allow holders to vote on various proposals — are sitting on treasuries that are “in distress,” says Michael Safai of proprietary trading firm Dexterity Capital, meaning that their prices are below intrinsic 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, the liquidation value will be greater than the price I pay for 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 to the fact that he has seen this happen recently, although his firm has not done anything similar.
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