Banking On Profits From Cryptos’ Pricing Swings

Where there are exchanges — where assets change hands between buyers and sellers — there are myriad ways to make money.

Maybe on the trading itself.

In the land of cryptos, there’s been a long running debate, unlikely to be settled soon, over what a given coin or offering is “worth.” It can be a knotty argument, given the fact that, in many cases, even the most marquee of cryptocurrencies, such as bitcoin, are not inherently backed by a hard asset, or by a peg to a currency or basket of currencies. Things like bitcoin are worth, simply, what others are willing to pay for them.

Part of that stems from the relatively limited inroads that cryptocurrencies have made in the “real” world — where at least some wide embrace brings price stability.

We’ve seen new coins, we’ve seen ICOs come and go. We’ve seen bitcoin touch $20,000, drop around $4,000, and now trade, at this writing (Tuesday, Sept. 10), at about $10,200.

The only sure thing, in cryptos anyway, is that there is no sure thing.

And the ripple effects? Well, why not the creating of a way to capitalize on the volatility? As reported by numerous sites, such as Cointelegraph and via Finance Magnates on Monday (Sept. 9), a hedge fund based in the United Kingdom, Nickel Asset Management, has raised $50 million to debut a crypto investment fund that seeks to arbitrage cryptos and digital assets.

How does it work? In simple terms, an arbitrageur seeks to capitalize on pricing differentials or inefficiencies, and where separate markets can have big gaps in pricing. The Nickel Arbitrage Fund, in other words, will look in some cases to buy a digital offering on one exchange and sell it a higher price on yet another exchange.

“As long as digital assets and their derivatives trade on multiple exchanges across the globe, with sufficient speed and execution quality, we can profitably make markets, while improving liquidity for other market participants,” said Alek Kloda, who serves as portfolio manager at Nickel, according to Cointelegraph.

There has already been a stamp of approval from U.K. regulators via the Financial Conduct Authority. And in further commentary, Nickel Asset Management CEO Anatoly Crachilov said digital assets will fund their way into institutional portfolio allocations. A market neutral approach implies that the fund will look to exploit even the most minute pricing differentials to generate returns. Volatility is enough to hinder progress in some asset classes.

In past months, as noted by Cointelegraph, volatility and fears of market manipulation have played a part in at least delaying the acceptance of ETFs (exchange traded funds). In this case, the lure is what scares off other would-be players — namely, wild price actions. Might the exploitation of inefficiencies lead to market efficiencies? Time will tell.