Can Crypto Investors Profit During a Bear Market? Haru Invest's Hugo Lee Says Yes.

Author: Hugo Lee, CEO of Haru Invest 

Cryptocurrency trading can be complicated for many due to the volatile and unpredictable nature of the market. Similar to the traditional stock market, there are varying approaches and strategies crypto traders can utilize and tweak depending on the state of the market at any given time. Since crypto trading is largely about speculating token price movements, having a trading strategy in place before attempting any trades is important and allows traders to pick the approach best suited to their comfort level.  

One approach that is known to be profitable and low-risk during bear markets is arbitrage trading, where investors attempt to generate profits by leveraging the price gap between various crypto exchanges. Let’s discuss arbitrage trading in more detail and why this approach can generate profits during a bear market like the one we’re currently in. 

Arbitrage Trading in its Simplest Form 

Crypto arbitrage trading is when an investor buys a digital asset or token on one exchange and sells it on another exchange simultaneously where the price is trading higher, generating a quick profit. This type of trading strategy is all about identifying and then leveraging price gaps, and involves buying and selling digital assets on different platforms. If done correctly, this form of crypto trading can bring in attractive profits with minimal risk.  

Crypto asset prices can fluctuate many times over a 24-hour period, as they are traded globally and on markets that never close, creating a bigger opportunity for arbitrage traders in the crypto markets versus traditional markets. Traders would simply need to be on the lookout for changes in price across exchanges. 

Benefits and Drawbacks of Arbitrage During a Bear Market 

Being in a bear market means investors are focusing on different trading strategies than they would in a bull market; some might be looking for a strategy that will still generate profits but is on the less risky side, like arbitrage.  

One of the biggest advantages of utilizing arbitrage trading during a bear market is it’s often profitable regardless of whether the market is up or down and requires less predictive analysis compared to other strategies. Arbitrage trading is also relatively low risk since investors won’t have open positions on exchanges since they are sold quickly, with many trades only lasting mere minutes.  

No trading strategy is 100% risk-free, however. Drawbacks of arbitrage trading include the minimized exposure to price change and quick responses to every tiny price change – that means even if a price goes up, a trader’s profit isn’t going to increase dramatically. There’s also a risk of slippage, where investors end up losing money if there’s a deviation in the predicted price of an asset causing them to pay more than anticipated. Fees are also a concern, as platforms charge different transfer and trading fees that could quickly eat up any profits, so investors should be cautious of tight margins. The emergence of trading bots — essentially computer programs that automate the trading to help investors meet the need for speed — are also becoming a more common occurrence among arbitrage traders. 

When to Utilize Arbitrage Trading and Where to Find Help 

To make a profit with arbitrage trading, investors need two factors to happen at the same time: enough transaction volume and price volatility. One of the best times to take advantage of an arbitrage investing strategy would be when the price of an asset goes up and the transaction volume increases, which would lead to more price surges and, ultimately, create price volatility.  

Algorithms have evolved over the last few years making arbitrage trading more difficult to get the hang of in today’s market, and it’s a method that can take practice to become skilled at. Investors of all levels can look to crypto professionals and take advantage of platforms like Haru Invest that help users invest their deposits with minimized risk trading and generate earnings based on an algorithmic trading model that utilizes different trading strategies.  

While arbitrage trading can certainly make investors money during a bear market, remaining diversified in investments and taking advantage of different trading models will help investors increase their chances of earning more profits in the long run.  

This post is commissioned by Haru Invest and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.

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