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The bitcoin and the altcoins are increasingly well on their way to become an asset class for investment diversification. The statement seems obvious at a time when the crypto market is experiencing a bull market. But definitely, the return on the investment is not related to the value of the cryptocurrency. There are different strategies in which is possible to obtain significant return and use the bitcoin to build and diversify assets.

Generally, there are three types of macro strategies on the market and we can apply them also to the bitcoin and altcoins. The best known is the speculation. In this mode of operation, there is a bet on a market movement through the purchase or sale of an asset that corresponds to a given strategy. The simplest example would be to purchase an asset waiting that its price would rise. Once the price goes up, you can make the profit.

The second type of operation is the hedge, much used by crypto companies. In other words, to protect themselves from volatility in any obligation contracted in criyptocurrency, the operator makes use of the asset purchase or some other financial instrument to protect it, as a future contract. Although there is no official futures market yet, some brokerages allow its use, like the BitMEX. And finally, the arbitration, for which it is possible to identify profit opportunities through the difference in price between the cryptocurrencies.

Speculation with bitcoin can be done in several ways

Within the speculation ground, there are several strategies. The technical and statistical analysis may allow for example the identification of patterns of a certain active pair and thus, earnings can be achieved.

One of the speculative strategies used by the trading desks is the identification of high or low ending cycles by using technical indicators. As they realize the depletion of a particular trend, the trader can operate in the opposite direction. Another set of indicators and moving averages are used in order to confirm the trends.

Dominance of the bitcoin embeds earnings

A specific type of speculative reasoned strategy is based upon the dominance of the bitcoin in relation to the altcoins. Generally speaking, when the dominance of the bitcoin falls, alternative currencies tend to appreciate. If the dominance of the bitcoin rises, the trend is that the altcoins get depreciated. Identifying these rising and falling movements of dominance is a way to get good profits. The information about the dominance can be found at Check the chart below with the historical dominance of the bitcoin and major altcoins.

Arbitrage is an opportunity to get return on bitcoin

When it comes to arbitrage, we have in the market two well-known strategies. The first is the arbitrage which can be made between different countries or between exchanges. In this case, it is usually developed an arbitrage price of the same asset. For example, if at an exchange A you have a bitcoin valued in US$ 1,000 and at B it´s US$ 1,100, you can buy it at A and sell it at B, having earnings of US$ 100. The same goes for arbitrage between different countries.

However, there is also the arbitrage within the same crypto exchange. For example, if it is possible to identify an opportunity for arbitrage between different pairs of crytocurrencies, you can get quick turnover, without  the need to exit the exchange environment. For example: you buy EOS with tether dollars and then uses the EOS to purchase BTC. You performed two operations, but in practice you turned EOS into BTC.

“For example, you buy a candy at the bakery for R$ 2 and then exchange that same candy for R$ 1. Which means that you were able to transform R$ 2 in R$ 1. In doing so, I´ve made arbitrage, because if I go to a currency exchange I will pay R$ 4 in US$ 1. You can do the same with crypto”

The head of Investments at the Transfero Swiss AG, Carlos Franco Russo, explains with a simpler hypothetical situation. “For example, you buy a candy at the bakery for R$ 2 and then exchange that same candy for R$ 1. Which means: you were able to transform R$ 2 in R$ 1. In doing so, I´ve made arbitrage, because if I go to a currency exchange, I will pay R$ 4 in US$ 1. You can do the same with crypto” exemplifies Russo. In this case, the candy was the means of exchange for the arbitrage. In the examples of the cryptocurrencies, the EOS was the means of exchange used.

This type of arbitrage can, in theory, be made by a human being. But these opportunities are almost always identified by robots. Typically, different robots compete for these opportunities. So it is very unlikely that a human being can do it.

Another type of arbitrage which can be made within an exchange is to identify a pattern of trading. A practical example: some exchanges keep robots who buy and sell bitcoins for themselves, to give a feeling of greater volumes traded. That is to say, they launch orders of buying and selling with the same amount, not by changing the price of the asset, but increasing the trading volume.

In this situation, if it’s possible to identify a buying opportunity in a smaller value than is being negotiated at the moment in these exchanges transactions, the trader can launch a purchase order to tie-in with the sales order in the lower value. Afterwards, he can sell the cryptocurrencies for a higher value.

However, once more the bad news is that a human being can hardly do that with the naked eye. It is necessary to use robots that identify those standards and launch buying orders automatically when they realize the opportunity.  

Transfero strategies to obtain return with bitcoin

Transfero uses some of these strategies in the management of their customers’ portfolios. For example, the arbitration is the only strategy used at TSAG Conservative. On the other hand, TSAG Advanced brings together a set of speculative strategies and arbitrage, which allows  earnings even when the bitcoin falls in price. Additionally, there is also another distinction to be made between two types of strategy: active and passive.

Although distinct, the Conservative and Advanced strategies are active, as they demand non-trivial decision-making processes. Conversely, the TSAG Libra, another product of Transfero, follows what we call as a passive strategy, because the actions of the strategy manager are defined beforehand. In Libra, the order is to have a portfolio with the 10 largest cryptocurrencies, with 10% share each in the portfolio. The portfolio is rebalanced on a monthly basis according to the price rate of each asset and in order to maintain the proportion of 10% per asset in the portfolio.

Transfero Swiss AG is a Swiss company with a focus on administration and management of digital assets – considered the newest class of assets for equity diversification. Please contact us so we can explain in more details about the company and our products. We know how dynamic the market is and we want to help you with the strategic allocation that best fits your style.