There are many strategies that can help traders make profits in the downturn. These range from simple to complex arbitrage. Talking about making money in a downturn can be a bit strange. Bitcoin has struggled to keep prices above $20,000 and $1,000, respectively. The global cryptocurrency market cap stood at $904 billion as of Monday morning. This is a significant drop from $3 Trillion in November.
It is clear that there are ways to make money in the crypto crash and arbitrage traders use them.
Arbitrage is the simultaneous purchase and sale of assets to make a profit from small price differences across markets. Speed is the best rule of thumb when these differences are small. Arbitrageurs use algorithms and bots to identify opportunities before they close.
This is the core of high-frequency trading companies like Citadel or Tower Research Capital.
However, you don’t need to be a quantitative to make money using an arbitrage strategy, Ahmed Ismail (president and CEO of Fluid Finance) told decrypt.
During the conversation, he shared his screen. He showed that the delta (or difference in prices) for Bitcoin, hands down the most liquid cryptocurrency, was $45. This means that someone could buy $45 worth Bitcoin on one exchange, and then sell it for $90 at the other.
Ismail stated that he has friends who aren’t very smart and make tons of money using very, very simple strategies such as those. These are people with two years of trading experience.
Fluid Finance is a liquidity aggregator that uses AI to predict price fluctuations between centralized exchanges (like Binance or Coinbase) as well as decentralized exchanges (like Uniswap or Curve). Fluid then sells assets, such as Bitcoin, to users at the best price, and handles settlement with the exchange.
Ismail stated that arbitrage traders are kind of our enemy because we use the same strategies they do to predict the market using hyperscale and quant-based strategies. This is used in high-frequency trading. We use it to predict the market, and give our clients the best execution.
There’s plenty of room for arbitrageurs and Fluid to coexist because there is so much fragmentation in the crypto market.
Juan Pellicer, a researcher at crypto market intelligence firm IntoTheBlock told decrypt that a lot of arbitrage can also be done entirely on-chain.
Pellicer stated that an example of finding an on-chain triangular arbitrage possibility could be as follows: A trader sees they can buy 1 Wrapped Ethereum for 1400 DAI on SushiSwap. The wETH is a version Ethereum which can be used on other Blockchains and can then be purchased on Uniswap at 1,500 USDC .
He said, “Having DAI, it was possible to buy ETH at $1400 in Sushiswap, and then sell it for $1500 in Uniswap, gaining 100.”
It is a good idea to use a stablecoin for your last trades in a market that is volatile. This reduces the risk that the trader will remain holding onto an asset that is likely to fall in price before they can make a profit.
Arbitrage and flash loans
Another form of arbitrage is Flash Loans. Caleb Sheridan (Eden Network co-founder) told Decrypt.
He said that atomic arbitrage can be used to create value from thin air. You don’t need to have a lot of money or have capital. Start with a quick loan to buy an asset and then sell it for a higher price. The loan is then repaid in one transaction. You make your profit from the rest.
Atomic arbitrage is not as popular as it could be in terms of the number of people who can do it. However, there are many competitors for those who do know how to do it.
This is part of why the Eden Network exists. This protocol allows traders to ensure that their transactions are placed in the right block of the Ethereum network.
Sheridan stated that anyone can use Ethereum to crunch numbers and determine if there is an imbalance. Then, they can figure out the most efficient and effective way to correct it. It’s almost like a game where many people are looking for the same opportunities, and they’re competing with each other.