Trading and Cryptocurrency Creative Destruction

Wojak pushes their boulder-like brain up a mountain with the words phrases mean-reversion, bid-ask spread, volatility, and liquidity written on it.

Market Characteristics to Consider

This “creative destruction” creates fragmentation. There are so many cryptocurrency exchanges in the ecosystem now that a novice may get analysis paralysis on where to start and how to trade. So, today, we’ll give you some pointers on what to look at to give you that initial dose of encouragement.

  • Bid-Ask Spread
  • Liquidity
  • Volume
  • Volatility
  • Mean-reversion
  • Fee structures like rebates and progressive paradigms
  • Funding mechanism

Applying Them to Market Making

Let’s consider the market making strategy as we have described before. This version uses a single exchange, moving bids and asks to keep up with changes in the reference price or leans for that venue.

Onto Discretionary Trading

While you can theoretically work with any strategy and perform well, once making gets too challenging, you might start to consider alternative frameworks. For example, we could look at a directional taker strategy. Sometimes called discretionary trading, this almost has the opposite ideal situation for a market maker.

Spread Trading and Moving Forward

We can branch to other trading approaches if we add the market maker to the spread trade. It can be broken up into a shorter time horizon vs. longer term spread trading, for example.

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