Experts are staying safe in a bear market

The cryptocurrency market is notorious for volatility, with some cryptocurrencies experiencing more volatility in a single day than many traditional financial instruments in an entire week.

While this volatility has made cryptocurrencies one of the most lucrative assets for speculators and investors, it also brings with it significant risks โ€“ as the market can experience significant adverse price swings, which can quickly wipe out investors in a bear market.

But while some investors struggle to take profits when the market turns red, others are well-prepared, already taking advantage of a combination of platforms and strategies to maintain value or even take profits no matter how the market performs.

Here’s how they do it.

Decentralized options trading

Cryptocurrency trading can be broadly divided into two types: long and short. People who are long trading are looking to take profits when the value of the cryptocurrency asset goes up, while those who are short are looking to profit from it going down.

But while the vast majority of traders know how to speculate on the upside, relatively few are able to speculate on the downside – largely due to the limitations of spot exchange platforms, since these usually do not provide the ability to sell an asset.

That is why experienced traders instead prefer options trading – a type of derivative contract that gives its holder the right to buy or sell a certain asset at a specified price if it exceeds a certain limit during a certain window. They can be used to easily speculate on whether an asset will rise (eg by buying put options) or decline (eg by buying put options).

Until recently, the vast majority of options trading was done on centralized platforms. But due to the limitations of the types and the variety of options available, many of the more sophisticated options traders now prefer decentralized options trading platforms – including prima.

The reasons behind this are numerous, but mostly stem from the increased flexibility that decentralized options offer. For example, traders can create their own personal options contracts and then provide liquidity to these contracts using Premia’s options builder and decentralized marketplace.

This allows traders to buy or sell on their assets of choice, rather than relying on the potential range of options contracts available on centralized platforms. As a result, experts are increasingly taking advantage of platforms like Premia to hedge their positions and net profit when the market enters a downturn.

arbitrage trading

The most common way that traders make (or try to make) a profit in most markets is by speculating on the direction of price movement, such as swing trading or day trading.

While many traders are incredibly successful at this, the vast majority of traders are not able to make profits through trading speculation. Instead, most of them end up losing. This is doubly so in Bear The market, where profit opportunities are more rare, as most assets are in a strong decline.

However, there is a way to make a more reliable profit, regardless of the surrounding market conditions by engaging in a practice known as arbitrage. This is basically the process of extracting profit by buying an asset on one platform, before immediately selling it on another platform to lock in the difference in value as profits.

Arbitrage opportunities exist when an asset is trading by a large margin across two or more platforms – for example, if Bitcoin is trading at $30,000 on one platform and $35,000 on another, you can buy 1 BTC on the first platform, and transfer it to The second, and sell it to secure a profit of $5,000 (minus the fees).

Given the volatility of most cryptocurrencies, these opportunities are fairly common and do not pose much of a challenge to implement. However, it should be noted that these opportunities are generally very fleeting, while those who are able to execute large orders (in absolute terms) will be better off as the fees can reduce profits.

As with everything, there is still some risk in arbitrage, but with the right tools, timing and skills, it can be a safe way to profit in any market.

provide liquidity

If you have ever traded on a cryptocurrency exchange, you may have already come up with one simple truth – no matter how the market moves, cryptocurrency exchanges always win.

This is because these exchanges always get a discount on trades, regardless of whether the individual wins or loses. But while this revenue stream has been largely restricted to contributors to centralized exchanges, the emergence of decentralized exchanges and unlicensed liquidity pools has democratized access to trading fee revenue.

Currently, there are more than a handful of decentralized exchange protocols that allow users to provide liquidity to pools and share in the fee returns they generate – some of the most popular options include Uniswap A curve on Ethereum and Pie On the Binance Smart Chain.

A diagram of Uniswap liquidity pools. (Photo: Uniswap)

The way it works is simple. By contributing to a liquidity pool, such as USDT/USDC, the investor then owns a stake in that pool. When liquidity is added or taken from the pool, the trader is charged (eg 0.3% of the trading volume on Uniswap or 0.2% on PancakeSwap). This revenue is then distributed proportionally to all liquidity providers.

Given the complexities of automated market makers (AMMs) and Stable product formulavolatile assets added to the liquidity pool (such as ETH/WBTC) can experience non-permanent losses (ILs). In many cases, the revenue from fees will outweigh any potential ILs, but many liquidity providers tend to avoid the problem almost entirely by only contributing to pure stablecoin pools – which suffer little or no volatility-related losses.

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