As in any traditional market, there are a lot of earning opportunities and trading strategies in the crypto market that can be used to try to "game the market".
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1. Arbitrage
Arbitrage is the simultaneous buying and selling of an asset to make a profit due to the price difference. An arbitrage trader acquires an asset in one market and then sells it in another market at a higher price. For the cryptocurrency market, we can give the following example.
Suppose Bitcoin is traded on Coinbase at $3300 and Binance at $3400. In this case, the arbitrage trade can buy cryptocurrency on Coinbase and at the same time sell his bitcoins on Binance, making a profit.
Arbitrage can be a profitable trading strategy if you do everything right. To automate and increase the execution time of the operation, you can use various trading tools, such as trading bots, but, as the cryptocurrency market develops, it becomes increasingly difficult to make money on the price difference.
2. Fundamental analysis
It is also possible to analyze fundamental factors in an attempt to understand how much the asset is overpriced or underpriced. For example, the fundamental analysis of a company's shares takes into account, in particular, such parameters:
- P/E - the ratio of share price to profit
- EPS - the ratio of profit to share price
- ROE - return on equity
Fundamental analysis is the methodology first proposed by the U.S. investor Benjamin Graham. Later it was popularized by Warren Buffett, today one of the most famous investors in the world.
Fundamental analysis is most often applied to companies, but with the same ease, it can be used when trading digital assets. Of course, indicators like P/E are not suitable here, but you can use other indicators specific to cryptocurrencies:
- NVT - the ratio of network cost to the number of transactions
- Crypto-active value proposition
- Team quality
This approach implies that the crypto-active needs to be acquired for about 10 years, and therefore current volatility is irrelevant.
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3. Trading on fluctuations
It is known that the cryptocurrency market is very volatile: the price of Bitcoin or any other cryptocurrency can rise by 20% in just a few hours - and it is also easy to fall back. Some traders use this volatility to make a profit, and one of the strategies used is trading on fluctuations.
Trading on fluctuations implies that a trader holds the cryptocurrency for a certain period, usually a few days or weeks. Next, he tries to determine the general trend, upward or downward.
The success of trading in fluctuations largely depends on a person's ability to guess the movement of the market, which, given the speed of reversal of the cryptocurrency market, is particularly difficult. Thus, trading on fluctuations is one of the riskiest strategies.
Conclusion
The cryptocurrency market is a complex world, and its volatility can be a blessing to some and a curse to others. There are many trading strategies, but anyone of them carries risks. Thus, it is important not to invest more than you can afford to lose, but also to anticipate any course of careful study of all circumstances.