Bitcoin hedging and arbitrage opportunities on shrinking volatility

Cryptocurrency space strikes a lot of attention for its unusual volatility, that also poses considerable risk for extensive returns. On the risk perspective, arbitrage is the strategy that appears to be low-risk though.

Arbitrage opportunities allow cryptocurrency traders to make some decent money regardless of its trend due to the difference in its pricing between various exchanges. Thus, tracking such currency pricing and exchanges are worth keeping an eye on throughout the day, albeit timing would be crucial to making the most of these options.

Today for instance, we compared BTCUSD prices at two different exchanges, namely, Coinbase and Bitfinex, that showed prices at $6,400 and $6,543 respectively. Likewise, these prices are not identical on all exchanges. While Gemini is listing BTC at $6,395, Kraken is listing the same at $6,410 while articulating. Let’s ponder over (1) Transferring fiat from bank account onto Gemini, 2) buying BTC with that fiat on Gemini, 3) Routing that BTC to Bitfinex, 4) and selling the same BTC on Bitfinex, in the end 5) Transferring that fiat from Bitfinex back into our bank account. In this process, one can derive handsome return due to the price difference everything swiftly and without or negligible fees at very little risk.

Likewise, Paribu and Koinim are two active cryptocurrency exchanges, many crypto aspirants might not know as these platforms might not generate too much liquidity. Well, for some unspecified purpose, at these platforms, Bitcoin may have valued at a very low price. Again, arbitrage is viable with such exchanges.

On the other hand, we notice the low volumes were observed in Bitcoin trades that has been a cause of concern for the cryptocurrency avenue from the last couple of days. Although BTC was expected to break out of major resistance levels at $6,800 and $7,000, low volumes prevented it from recording a major movement on the upside.

The Hedge Fund firms note to investors points out that in 2017, cryptocurrency markets and trading platforms have come up with better liquidity and stability, as additional products have been added in an attempt to tame the volatility of Bitcoin.

While volatility is the heart and soul of trading (especially derivatives). With the proper understanding of volatility and how it affects your options you can profit in any market condition. The markets and individual asset class are always adjusting from periods of low volatility to high volatility, so we need to understand how to time our option strategies.

Hedging this turbulence: For now, to evaluate the future prices for this unconventional currency BTCUSD. Pricing BTC vanilla options are available at ORE which are not straight forwards as the underlying instrument (BTCUSD) is a new and a heavily volatile asset class. Option trading platforms like, Sentrix and ORE are exploiting with advanced mathematical models and techniques in order to attempt and infer future price behavior of BTC.

While capitalizing on such Bitcoin vanilla options, BTC option traders can get a clarity about bitcoin future prices and volatility to certain extent.

From January to till date has been the eventful months for bitcoin bears, with bears who are eager to short and gain despite the falling market being able to access bitcoin directly through futures made available through CME and CBOE.

Hence, on hedging grounds, one can initiate shorts in 1m CME futures with a view to arresting further potential dips.

Currency Strength Index: FxWirePro's hourly BTC spot index is showing 3 (which is neutral), USD spot index is flashing at 75 (which is bullish), while articulating at (07:39 GMT). For more details on the index, please refer below weblink:

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