[crpyto] lucrative reward for wall street pros in the crypto market

[link: Bloomberg - Wall Street Uses Old Tricks in $2.4Trillion Crypto Jungle]

Sharing a very interesting article here published by Bloomberg this week on how Wall Street firms (ie. the market making firm, the high-frequency trading firms) are now deploying strategies that are time tested in the equities / commodities market -- price arbitrage, futures trading, etc. -- into the crypto currencies market. 

They talk about a few example of such strategies in the article: 

• The kimchi premium, the tendency for Bitcoin to trade higher in South Korea thanks to strong demand and the difficulty of moving money around to profit from the gap.
• The crypto basis trade: when longer-dated futures in pretty much any asset class trade higher than the spot price -- known as contango -- the former almost always converges to the latter as the contracts mature. Hence an investor can go long the spot rate and short the futures to capture the "basis". 
• Options writing: Just like in stocks, the investing style sells derivatives to take advantage of big demand to hedge price swings -- which causes the volatility priced into options to be higher than what’s likely to come to pass. That means much higher premium compared to traditional asset classes. 

The crypto market sounds very lucrative for these market makers, and indeed it is. The systematic risk here is that Bitcoin / cryptocurrencies is becoming a much larger part of the investment universe than it used to be (Bitcoin is up ~100x over the past five years! Yes, one hundred times!), and volatility is much higher in the crypto space compared to that in traditional asset classes. So any fallout in the crypto space can definitely spill over the the rest of the financial markets. 

In fact, there is a website that tracks all the "Dead Coins" (ie. crypto currencies or coins that have been abandoned, used as scam, or where developers have walked away from the project), and there are more than 2,000 of them and counting (link: Dead Coins). So while reward can be lucrative if one bets on the right opportunities, the stake can also be high. 

Last but not least, here is an interesting video produced by CNBC that talks about the mechanism behind crypto-mining 

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