In every investor’s journey, they experience a crypto winter. In such a period, there is a decrease of many digital assets by more than 70%, known as a bear market. Thus, investors are always looking for ways to survive the period and still gain profits from it.
There are different possible ways to survive the bear markets. Some of the strategies work better than others. We focus on delta-neutral strategies, coming as the best way to make money in the markets
What is a Bear Market?
A bear market signifies a period when the stock market or broad market index drops by 20% or even more. In such a time, most assets are in a downward trend, except for occasional relief rallies.
One way that investors take advantage of this is by finding stocks that are attractively priced and buying them, eventually ending the bear markets.
Bear markets represent that capital preservation is an important way of investing. Therefore, it is crucial to be greedy when others fear the bear market, which guarantees long-term winnings.
There are different ways to make profits in such a time. However, the delta-neutral strategy is the best way to gain profits in such uncertain times.
Delta Neutral Strategies
A delta-neutral strategy allows investors to profit regardless of the direction in which an underlying asset moves. Whether the direction goes up or down, the investors’ profits remain the same. The strategies use the collective positions in a portfolio, thus neutralizing one another.
The most common way to neutralize a position in crypto is by using perpetual or money markets.
For instance, one can buy 1 BTC and open a BTC short position with 2x leverage using a certain amount as collateral.
Therefore, the BTC price will not expose the investor. Additionally, one can use the bought BTC on Defi to generate yield.
In addition, one might get additional rewards from funding rates, which are periodic payments, depending on if most traders are long or short.
If funding rates are favorable, longs pay shorts. If funding rates are negative, shorts pay longs. Consequently, this opens up many opportunities.
When using delta-neutral strategies, it is vital to note that there is intelligent contract risk, as maximizing profits requires interacting with dApps. Additionally, funding rates can be highly volatile.
So, still, tread carefully when aping in.
You may also enjoy reading Bear Markets Turn Out to be a Good Omen.
Vincent Munene is a freelance writer and a great blockchain enthusiast. Blockchain has changed his life in terms of financial freedom and in return, he likes to educate people and keep them up to date on everything blockchain. He is a Biochemist by profession and also loves to play the piano.
