[2017-10-29]Market Volatility, Illiquidity Can Be Quite Profitable for Bitcoin T

[Yaunfitda]

Market Volatility, Illiquidity Can Be Quite Profitable for Bitcoin Traders

Introduction to “spreads”

The cryptocurrency markets are often volatile and suffer from periods of limited liquidity. Combined, they increase the risk profile for Blockchain asset investors.

But with increased risk, the potential for reward should increase as well. In this post we explore one method professional traders use to handle volatility and liquidity issues and explore ways to profit from these inefficiencies.

Introducing mean-reversion strategies

Volatility is driven by uncertainty. Some strategies, however, profit from volatility and even illiquidity. At the same time these strategies help mitigate market inefficiencies and should be rewarded for that.

Mean-reversion is the assumption that a stock's price will tend to move toward its average price over time. In other words, deviations from the average price could be exploited for profit, based on the knowledge that the price should tend to revert to the mean in time.

A simple implementation of this strategy is to quote both a sell and a buy price, like a market maker. If the market is in fact mean reverting, then the strategy profits from the difference between the buy and sell price. The difference is also called the quoted spread.

Mean-reversion strategies trade the market as if the market oscillates around a fair price for an asset. The swings are driven by the uncertainty of other market participants or illiquidity at different market levels. Mean-reversion strategies bridge the gap between buyers and sellers and can expect to generate a profit from that.

This strategy is most effective in markets that are both high in volatility and are mean reverting. Volatility measures the size of the market’s swings. With high volatility, market swings are large and the mean-reversion strategy has a high probability of generating a profit. In markets with low volatility only small spreads are possible and the strategy is less profitable.

The best market scenario for mean-reversion is a sideways market with large volatility or market swings. This market scenario is damaging for trend-following strategies but profitable for market making or mean-reversion strategies.

https://cointelegraph.com/news/market-volatility-illiquidity-can-be-quite-profitable-for-bitcoin-traders

[hatshepsut93]

Lets not forget that trading is a zero sum game and traders who get profits are doing so at expense of traders who suffering loses. There's a general opinion that trading involves analytical skills, that it can be learned but most people are silent about less conventional means of getting profits from trading - insider information, all sorts of manipulation like pump and dump, spoofing, spreading false rumors and so on. It's quite possible that such traders are present on Bitcoin markets because they aren't very regulated, and there two ways to solve this problem - either invite regulators all over the world or wait for Bitcoin market to naturally mature. I hope that we will have the second way and in the future the price will be more stable and less manipulated.

[panju1]

All these strategies work on the assumption that markets are efficient and that it is possible for you to estimate a fair value (or the mean, to which the price will revert). Temporary imperfections can then be exploited. Bitcoin may not necessary follow all those rules.

[Kronos21]

Bitcoin will never be stable until the exchanges will not apply to regulatory measures. Bitcoin is now traded in primitive conditions. Whales have full control over the market. Having the most coins they can in its discretion reduce or increase the price. In such circumstances, the speculators in the cryptocurrency market have carte Blanche.

[Kprawn]

Bitcoin will never be stable until the exchanges will not apply to regulatory measures. Bitcoin is now traded in primitive conditions. Whales have full control over the market. Having the most coins they can in its discretion reduce or increase the price. In such circumstances, the speculators in the cryptocurrency market have carte Blanche.

How will regulation of exchanges have a influence on volatility? The volatility is directly attributed to the unequal distribution

of coins. If you can take away coins from these so-called "Whales" and then distribute it more evenly amongst more people,

then you can reduce the impact that these "Whales" have on the price. They cannot dump loads of coins on these exchanges

to manipulate the price. {supply & demand} 

[Karakyli]

Volatility, which is inherent in the crypto currency, can be used very advantageously in trading on the market, as well as when investing in the crypto currency, and in particular, bitcoin. I generally do not view volatility as a lack of crypto currency, although it introduces some uncertainty in the market of crypto currency and delivers a lot of trouble to most holders of crypto currency.