Despite the volatility of the crypto market collapse on March 12-13, Coinbase has identified several unusual methods that traders took advantage of amid the chaos.
The crash resulted in rare gains thanks to “crypto-and-carry” derivative arbitrage, stablecoin speculation and the failure of MakerDAO’s auction protocol.
Coinbase states that the sudden shift in market sentiment from bullish to bearish created opportunities for derivative arbitrage through “crypto-and-carry” transactions.
Now that the exchange estimates that the crypto market is typically 60% bullish and that futures prices are higher than spot prices, Coinbase claims that arbitrage through derivatives is typically conducted through cash-and-carry transactions.
When the derivative prices rise against the spot prices, traders can borrow from going long on Bitcoin (BTC), while at the same time going short on futures to fix the profit from the spread when the futures contract expires. Since the strategy requires significant diversification to cover maintenance costs, derivative arbitrage opportunities are typically most prevalent during periods of peak volatility.
With the markets suddenly turning bearish, traders were able to be transversely able to lung BTC while selling in the spot market to hold gains through ‘crypto-and-carry’ trades during the March crash.
The report notes that multiple stablecoins broke their fiat peg to the top as traders rushed to capture value as crypto asset sales escalated during the crash.
While USD Coin (USDC) briefly traded at a 2% premium and Tether (USDT) tagged $ 1.05 during peak volatility, a liquidation engine failure that supported the MakerDAO protocol caused DAI to weeks with multiple premium was traded.
The difficulties created a unique opportunity for the only bidder who participated in Maker’s auctions for 3 hours himself, who bought lots of Ethereum (ETH) for $ 1 each – for nearly $ 4 million free ETH.
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