How To Harness The Price Performance Of Crypto With Reduced Risk

Short-Term Gains

One of the most attractive aspects of Crypto is the investment time frame. Investors generally realize significant gains in little to no time, especially when compared to traditional investment vehicles. What I want to address is perhaps more applicable to trading as opposed to investing. Why do traders choose Crypto as an asset class to trade? Well, the daily price action is generally rather robust. To see intra-day moves of 5% to 15% is not uncommon. Obviously, there are times that these moves are a lot more aggressive. We can look back to March of 2020 when Bitcoin lost as much as 50% in a single day.

What if One Could Remove The Risk?

Trading Crypto is a fairly exciting trading option but it can get really ugly when corrections take place. Listen, even in a bull market BTC can correct 30%! Volatility is the name of the game and that is unlikely to change soon. What if there was a way to enjoy the daily price action of the Crypto market without having the possible medium to long-term corrections? This idea revolves around an idea I presented in 2016 or 2017, I can’t quite remember. Anyway, my point was that traditional investors could enjoy similar price movements by leveraging more stable asset classes. This is very true and equally as effective.

How Do I Achieve This Dynamic?

So, how do I realize strong daily moves without exposing myself to sudden price collapses? The answer is simple, gold, PAX Gold to be more specific. You can trade PAXG perpetual futures on FTX, along with a number of other gold-related futures. Gold generally ranges between 0.5% and 1.8% moves on a daily basis. This might not sound like much but put a 10X leverage on that and you have some serious “Crypto market movements” without being exposed to the heavy downside. If gold were to retrace back to the lows of 2014 it would only be a 25% correction. This size correction is often seen in Crypto in a day or two. Two-day volatility vs 8-year volatility, while still enjoying the same daily range. That’s a good deal!

Strategy Counts

Obviously, Risk management is still very important. I usually deploy capital until my liquidation point is only a couple of hundred dollars, relative to the gold price. I don’t think gold will collapse from $1800 to $300. Platforms have unique leverage/liquidation structures. Bybit is another great platform for trading futures. Adding to a position that has gone against you on Bybit will see your entry price and liquidation point move lower. Once you have a firm grip on relativity, leverage, and smart capital deployment it becomes very easy to maintain profitability. One can also trade gold CFDs on a platform like XM. The high leverage offered on XM might be too tempting for some though.

Risk Management

In some ways, you are still trading a Crypto asset but it is not exposed to the heavy corrective moves. It also makes sense to be trading an asset that will at best remain moderately stable in the face of a complete market meltdown. Utilizing this strategy exposes the trader to good upside potential, while simultaneously creating a hedge. Single strategies fail at some point. Effective market players are utilizing multiple strategic approaches on a constant basis. Portfolio construction and risk management are two very underutilized practices in the Crypto space. Recent events display this rather clearly. If industry leaders never made provision for a bear market, how many inexperienced retail investors did likewise?

Final Thoughts

This is one of my own personal approaches to the markets and should not be considered investment advice. Always remember that “all in” moves with no counter trade is the equivalent of gambling. This strategy is not to be confused with buying gold or gold-related products for profit. This is a trading strategy that makes use of a fairly stable asset to gain quick profits by utilizing leverage.

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