Since the start of the crypto winter, investors have lost trillions of dollars, but one class of investors has found a way to profit from bearish sentiment and it’s not through advanced chart reading or paying close attention to fundamentals.
Since the beginning of the year, cryptocurrency prices have failed to replicate their 2021 figures and recent events in the markets have left investors in a panic. Bitcoin (BTC) traded at $20,950 for the first time since 2020, while Ethereum and other altcoins posted double-digit losses.
Despite the negative figures, arbitrageurs, according to a Reuters report, are exploiting the price differences of cryptocurrency assets on cryptocurrency exchanges. Their tactics have apparently made them a fortune since the beginning of the year and have been employed by hedge funds and other money managers.
“In May, when the market crashed, we made money. We are up 40 basis points in the month,” revealed Anatoly Crachilov, CEO of Nickel Digital Asset Management, praising his arbitrage strategy.
A recent report by PriceWaterhouseCoopers (PwC) revealed that this strategy is gaining popularity among hedge funds with a third admitting to using this method. K2 Trading Partners claimed that its crypto arbitrage fund had made 1% gains against the 30% drop Bitcoin faced, while arbitrage fund Stack Funds survived the market onslaught with just a 0.2% loss.
Arbitration players who thrive on chaos, but for how long?
Arbitrage trading typically involves buying a crypto asset at a lower price and then selling the asset at a higher price, making a profit on the difference. While it sounds like an easy strategy, investors will need to have access to multiple markets and use advanced algorithms to make healthy profits.
Hugo Xavier, CEO of K2 Trading Partners, noted that the lack of uniformity across crypto exchanges made it ideal “because it has different prices and that creates arbitrage opportunities.” Xavier stated that arbitrage opportunities thrive in periods of chaos and that investors need to pay close attention to “market stress situations”.
“If markets move sideways or down, retail traders calm down,” Xavier said. “The opportunities are less because most of the people there are market makers and they are efficient.”
Wintermute’s Katryna Hanush warns that while crypto arbitrage is all the rage, it could hurt markets in the long run. “As more institutional players enter the space, arbitrage opportunities will be eliminated,” Hanush said.
All information contained on our website is published in good faith and for general information purposes only. Any action that the reader takes on the information found on our website is strictly at their own risk.