Since the start of the cryptocurrency winter, investors have lost trillions of dollars, but a breed of investors have found a way to profit from bearish sentiments and it’s not through advanced reading of charts or paying attention to fundamentals.
Since the start of the year, cryptocurrency prices have failed to repeat their numbers from 2021 and recent events in the markets have left investors in a state of panic. Bitcoin (BTC) traded at $20,950 for the first time since 2020, while Ethereum and other altcoins posted double-digit losses.
According to a Reuters report, intermediaries are taking advantage of the price differentials of crypto assets on crypto exchanges, despite the negative numbers. His strategy has made him a fortune since the beginning of the year and has been employed by hedge funds and other money managers.
“When the market collapsed in May, we made money. We are up 40 basis points for the month,” revealed Anatoly Krechilov, CEO of Nickel Digital Asset Management, praising their arbitrage strategy.
A recent report by PricewaterhouseCoopers (PwC) showed that this strategy is gaining popularity among hedge funds, with a third admitting to using the method. K2 Trading Partners confirmed that its Crypto Arbitrage Fund made a 1% gain due to the 30% drop faced by Bitcoin, while the Stack Funds Arbitrage Fund survived the market attack with only a 0.2% loss.
Arbitrage players flourishing in chaos, but for how long?
Typically, arbitrage trading involves buying a crypto asset at a lower price and then selling the asset at a higher price, profiting from the difference. While this sounds like an easy strategy, investors will need to use advanced algorithms to gain access to multiple markets and make healthy profits.
Hugo Xavier, CEO of K2 Trading Partners, said that the lack of uniformity among crypto exchanges makes it ideal “because you have different prices and that creates arbitrage opportunities.” Xavier said arbitrage opportunities thrive in periods of chaos and that investors should pay close attention to “market tension situations.”
“If the market is trending sideways or going down, retailers calm down,” Javier said. “Opportunities are few because most of the people out there are market makers and they are skilled.”
Wintermute’s Katrina Hanush warns that although crypto arbitrage is in fashion, it could hurt the markets in the long run. “As more institutional players move into the space, the billion opportunities will disappear,” Hanush said.