Although I wouldn't ordinarily launch into a discussion about trading strategies which are directly relevant to one of my own hedge funds, today I finished up an article called "
Selling the Froth: A Simple Hedged Forex Strategy for Bitcoin-Denominated Returns", and I'd welcome any comments, criticisms, or alternative interpretations of what I've been seeing.
In a nutshell, on several occasions over a period of many months, it's been possible to lock in a reasonable level of return
in BTC terms by buying additional bitcoins and shorting a corresponding number of Bitcoin vs. USD futures. Modelling over a range of exchange rate changes from -90% to +400% for the value of BTC, the strategy can still remain profitable -- sometimes even beyond a 400% gain in the value of the bitcoins purchased as part of the strategy.
What's puzzling to me is why such a strategy would remain profitable, given that it doesn't require taking a directional position, and given that it can be profitable even when plugging in quite a high cost of capital; i.e., why hasn't such an opportunity already been eliminated? In the article, I suggest at least two possibilities, including an inefficiency in the market or an aggregate market view of the futures exchange that is fairly negative, but as I say, I'd welcome comments, criticisms, or other interpretations.