It’s no secret that the cryptocurrency industry has taken a beating over the past year. For those who invested in cryptocurrency early on, the recent bear market may have been a major source of stress. Some saw their portfolios lose up to 80% of their value. But, despite all the doom and gloom, there are still ways to profit in a bear market. Here are a few strategies to help you make money even when the prices are down.
A bear market is a market where prices are falling and investors are selling. Bear markets can happen in any asset class, but they are most common in stocks and cryptocurrencies. In a bear market, prices tend to fall quickly and sharply, often in response to bad news or a general economic downturn. Bear markets can last for months or even years, and they can be difficult to profit from. Many investors choose to wait out bear markets since they eventually turn around and prices start to rise again. For active investors, bear markets can provide opportunities to buy assets at a discount. By carefully picking assets that are undervalued by the market, investors can make money when prices start to rebound.
A bear market is typically defined as a 20% decline in asset prices from recent highs. Other characteristics of a bear market may include high levels of market volatility, declining economic activity, and increasing uncertainty. A bear market is often preceded by a period of economic expansion, which is typically followed by a period of declining economic activity. This decline in economic activity can be caused by some factors, including interest rate hikes, geopolitical tensions, and economic recession. Bear markets can last for months or even years and can have a devastating effect on investors' portfolios.
In a crypto bear market, crypto prices are falling and investors are losing confidence. The market is typically characterised by high volatility, low volume, and negative sentiment. It is important to remember that crypto prices are still volatile during a bear market and can go up or down.
A bear market should not be confused with correction. A bear market is a prolonged period of declining prices in a particular asset, while a correction is a short-term reversal in an asset's price trend. For example, Bitcoin may fall by 20% during a bear market. However, it may rebound by 10% during a correction.
When the price of Bitcoin falls, the prices of other cryptocurrencies tend to follow suit. This is because Bitcoin is often seen as the leader in the cryptocurrency market, and its price movements have a ripple effect on other coins. Bitcoin was the first cryptocurrency, and it was this that sparked the entire sector. Thanks to its early adoption, it now has a massive user base, which has helped drive up its price and deliver the most secure network in the industry. Another reason why Bitcoin has such a ripple effect on other coins is that many altcoins are Bitcoin replicas. A profusion of Bitcoin replicas was observed in the years after its debut as a direct result of its rising popularity and value. Examples of these replicas are Litecoin, Bitcoin Cash, Bitcoin Gold, Bitcoin Diamond, and hundreds more.
Bitcoin is frequently seen as the cryptocurrency market's reserve currency, akin to the USD in global stock markets. Most crypto traders measure the worth of their cryptocurrencies in BTC, and never compare their values to those of fiat currencies. Because of this, it's normal to see the overall market price decline when Bitcoin's market sentiment drops.
DeFi arbitrage is a strategy that can be used to profit from the difference in prices of assets across different decentralized exchanges. For example, if Bitcoin is trading for $10,000 on one exchange and $9,900 on another, a trader could buy Bitcoin on the cheaper exchange and sell it on the more expensive one, pocketing the $100 difference. This strategy can be used in both bull and bear markets but is more likely to be profitable in a bear market when prices are more volatile. The strategy is designed to take advantage of price swings, with the trader buying at the low end of the swing and selling at the high end.
Cross-exchange arbitrage: DeFi cross-exchange arbitrage is a trading strategy that takes advantage of differences in prices between different exchanges. It involves buying an asset on one exchange where it is under-priced and then selling it on another exchange where it is overpriced. For example, a trader could buy a token on Exchange A when it is trading at $10, and then sell it on Exchange B when it is trading at $11. The trader would then pocket the $1 difference as profit. This can be done with any asset but is most commonly done with cryptocurrencies. This allows for a quick and easy way to make a profit without having to put in any extra effort.
This type of arbitrage is possible because DeFi protocols often have native tokens that are listed on multiple exchanges. This allows traders to exploit price differences that can occur between these exchanges. For example, MakerDAO’s MKR token is listed on major decentralized exchanges like Uniswap and Balancer. A trader can buy MKR on Uniswap DEX and sell it on Balancer DEX. This same process can be repeated using multiple chains and exchanges.
Arbitrage is the practice of taking advantage of a price difference between two or more markets. For example, if you buy a stock for $10 and sell it immediately for $11, you have made a profit of $1 through arbitrage. In the world of cryptocurrency, arbitrage opportunities often arise because prices can vary significantly from one exchange to another. By taking advantage of these price differences, traders can generate profits even in a bear market.
There are a few cryptocurrency arbitrage strategies that can be used based on different types of arbitrage, to take advantage of price differences between exchanges:
1) Spatial arbitrage: this is the simultaneous buying and selling of cryptocurrencies in different markets in order to take advantage of price differences. According to EigenPhi, over $301,000 trading profits have been made when this arbitrage strategy is used on BSC in the last 7 days, while over $322,000 trading profits were made on the Ethereum chain in the same period.
2) Triangular arbitrage: this is a trading strategy that takes advantage of differences in prices between three different cryptocurrencies. The trader buys one cryptocurrency, then uses it to buy a second cryptocurrency, and finally uses the second cryptocurrency to buy the third cryptocurrency. The goal is to end up with more of the third cryptocurrency than what was started with. According to EigenPhi, this strategy has generated over $380,000 in trading gains on BSC in the last 7 days, while the Ethereum chain has generated over $365,000 in the same time frame.
3) Combination arbitrage: this is the practice of profiting from the differences in exchange rates between more than three cryptocurrencies held in more than three liquidity pools. According to EigenPhi, over $314,000 trading profits have been made when this arbitrage strategy is used on BSC in the last 7 days, while over $134,000 trading profits were made on the Ethereum chain in the same period.
4) Sandwich arbitrage: Sandwich attacks entail "sandwiching" the victim's transactions between two transactions launched by the searchers/attackers, whose reordering of the transactions results in an implied loss for the affected users while potentially benefiting the attacker. According to EigenPhi, over $515,000 trading profits have been made when this arbitrage strategy is used on the Ethereum chain in the last 7 days.
In a bear market, arbitrage opportunities may arise when prices of assets in different markets fluctuate widely and erratically. Various trading platforms are not in sync with one another. That is, their prices are unrelated to one another. It fluctuates since each platform's pricing is determined by the traders. The size of the market, exchange volume, entry price, and average estimate pricing all influence the prices on different exchanges.
In a bear market, the discrepancy in prices is often due to investors' fear and uncertainty. A trader who can quickly capitalize on these price discrepancies can make a profit, but the strategy requires a great deal of skill and experience to be successful.
Arbitrage analytics is the practice of using data to identify and exploit pricing discrepancies in financial markets. By taking advantage of these discrepancies, traders can make a profit even when the overall market is in decline. Arbitrage analytics can be used in any market where there are multiple prices for the same asset. An example of an Arbitrage Analytics site is EigenPhi where you can track the arbitrage transactions on Ethereum and BSC. For example, in the last 7 days, arbitrage transactions on BSC made max profit of $144,864.85 while those on Ethereum made max profit of $117,335.73. Performance of each arbitrage type (e.g. triangular, spatial, etc) can also be tracked with liquidity pool and token by trading volume/trading volume percentage
Equalizer is the first specialized flash loan marketplace in the world, created to fulfil the increasing need for DeFi lending and borrowing. It stands out by offering the lowest fees and transaction costs, as well as a practically infinite number of token vaults, high liquidity via yield farming, a scalable, multi-chain architecture, and integration-friendly features.
One of the use cases of Equalizer is arbitrage trading. If the prices of assets on separate markets differ, you can take out a flash loan and acquire them for a lower price and sell them for a higher price on the other exchange.
Flash loans' instant processing makes them very suitable for arbitrage trading. As an example, suppose you want to initiate an arbitrage trade between Exchange A and Exchange B because time is the rate-limiting factor in arbitrage trading, a flash loan offers you the leverage you need for this transaction. Due to the unpredictability of the crypto market, the status of an arbitrage trade may change in a bit of time.
Yes. Volatility refers to the amount of risk or uncertainty associated with the price of crypto. When the price of crypto is volatile, it means that the price is changing rapidly and unpredictably. This will create for sure one or many arbitrage opportunities for the various arbitrage strategies described above.
A bear market is typically defined as a period when there is a significant decline in the prices of assets in a particular market. For cryptos, a bear market would be a prolonged time where the prices of digital assets are consistently declining. Most analysts would say that a bear market exists when there is a decline of at least 20% from the peak price.
Yes. Arbitrage is undeniably profitable. On EigenPhi, the Arbitrage Contract Leaderboard shows people making as high as $117,000 on a transaction that cost just $83. It is mind blowing. It does, however, need a significant amount of knowledge, dedication, and patience. Time is the rate-limiting factor in arbitrage trading. You have to be alert and fast.
To stay ahead of the curve, Searchers use advanced algorithms to analyze blockchain data in order to identify valuable MEV opportunities, and then use bots to publish those successful transactions to the network automatically (Miner extractable value (MEV) is the portion of a cryptocurrency's block reward that is available to miners as an incentive for validating transactions and maintaining the blockchain)
Arbitrage trading helps to improve market efficiency by drawing attention to price differences between markets, which can lead to price equilibrium (setting clear market prices for traders).