4 ms·

An honest question, understanding crypto and its true viability as a non-fiat currency or an anti-inflationary digital gold is simply above my pay-grade. I'm w

An honest question, understanding crypto and its true viability as a non-fiat currency or an anti-inflationary digital gold is simply above my pay-grade. I'm wondering if there are any smart plays out there to take advantage of the volatility and/or the inefficiencies in the blockchain that has zero directional delta exposure to the underlying crypto-market. I'm talking about the exploiting the inefficiency of some crypto-proxies like GBTC or MSTR that had 40-150% premium over their stated market value of their BTC holding at one point. Or similarly, doing some kind of long black swan tail trade (on both 500K and 5K BTC scenario) that minimizes the theta burn as much as possible to 0. Or even sympathy trades involving other physical commodities/precious metals. These are my current vague ideas. Would love to hear more from much smarter folks than me!

Marciplan 6y ago
I wish I understood half of your words :)
ornornor 6y ago
GPT-2 authored this comment. Or at least that’s how it feels to me.
arcticbull 6y ago
I'd love to find one. It's really difficult because crypto is a fundamentally inefficient market. It's practically impossible to meaningfully short-sell (except via futures) and the ratio of shorts to longs is about 1:19. If you have a ton of collateral, one option would be to buy 5BTC and short sell a corresponding futures contract. The contango is massive, we're talking 2% per month. This requires of course a decent bankroll, 310K to spend at Coinbase and then about 3M in margin to short a BTC future on IBKR. On the other hand it's a "risk free" 20% per annum, 0 delta play.
- noname123 6y ago
  I've thought about and looked into this. I heard some brokers actually allow you to custody your bitcoins with them, so basically you're 100% hedged and have 0 margin hit when you execute this pair trade. Additionally, if you can borrow 7:1 on Portfolio Margin for this 5BTC trade for both the long and short side… it becomes a reasonable trade. The question is, can you find a broker that allows you PM on crypto and could custody (or know you have the coins and allow you to HODL the short side in the face of a face-ripper rally of the underlying??). I've also thought about doing some kind of vol arb - if I can sell calls on some optionable over-priced crypto proxies like MSTR; and then buy calls on presumably more efficient BTC options on futures on CME to neutralize the delta and gamma. Greyscale also has an offering program for accredited investors that allows you to fund and buy their GBTC shares at NAV and be able to redeem back the shares after 6 months - and capture what used to be 20-40% premium over NAV (https://adventuresincapitalism.com/2020/11/24/why-this-reflexive-ponzi-scheme-will-continue/ https://adventuresincapitalism.com/2020/11/24/why-this-refle...). But I believe that premium returned back to a discount recently. So no edge is not there anymore. But you're 100% correct, there are so many issues exploiting inefficiencies in crypto despite that it is an emerging market. Exchange risk, risk of self-custody, lack of liquidity in derivatives. Best of luck!
  - arcticbull 6y ago
    You too!
rodiger 6y ago
https://www.hegic.co/ https://www.hegic.co/ is an on-chain options protocol if that's the kind of thing you're looking for.

Marciplan 6y ago

I wish I understood half of your words :)

ornornor 6y ago

GPT-2 authored this comment. Or at least that’s how it feels to me.

arcticbull 6y ago

I'd love to find one. It's really difficult because crypto is a fundamentally inefficient market. It's practically impossible to meaningfully short-sell (except via futures) and the ratio of shorts to longs is about 1:19. If you have a ton of collateral, one option would be to buy 5BTC and short sell a corresponding futures contract. The contango is massive, we're talking 2% per month. This requires of course a decent bankroll, 310K to spend at Coinbase and then about 3M in margin to short a BTC future on IBKR. On the other hand it's a "risk free" 20% per annum, 0 delta play.

noname123 6y ago
I've thought about and looked into this. I heard some brokers actually allow you to custody your bitcoins with them, so basically you're 100% hedged and have 0 margin hit when you execute this pair trade. Additionally, if you can borrow 7:1 on Portfolio Margin for this 5BTC trade for both the long and short side… it becomes a reasonable trade. The question is, can you find a broker that allows you PM on crypto and could custody (or know you have the coins and allow you to HODL the short side in the face of a face-ripper rally of the underlying??). I've also thought about doing some kind of vol arb - if I can sell calls on some optionable over-priced crypto proxies like MSTR; and then buy calls on presumably more efficient BTC options on futures on CME to neutralize the delta and gamma. Greyscale also has an offering program for accredited investors that allows you to fund and buy their GBTC shares at NAV and be able to redeem back the shares after 6 months - and capture what used to be 20-40% premium over NAV (https://adventuresincapitalism.com/2020/11/24/why-this-reflexive-ponzi-scheme-will-continue/ https://adventuresincapitalism.com/2020/11/24/why-this-refle...). But I believe that premium returned back to a discount recently. So no edge is not there anymore. But you're 100% correct, there are so many issues exploiting inefficiencies in crypto despite that it is an emerging market. Exchange risk, risk of self-custody, lack of liquidity in derivatives. Best of luck!
- arcticbull 6y ago
  You too!

rodiger 6y ago

https://www.hegic.co/ https://www.hegic.co/ is an on-chain options protocol if that's the kind of thing you're looking for.