By Marcie Terman
This is just musing really. Trying to second guess why Mutie does that she does.
Cryptocurrencies will easily have a 10-20% move in a single day. Sometimes, when things are really volatile, even more. When markets have this type of character, very quickly your downside trades have so little profit to make, it quickly becomes not worth the risk to make the trade. This is because there are only so many times you can lose 50% of a thing before the price hits zero.
For instance, let’s say you short a cryptocurrency at 100. If the price goes down 50%, you make $50 on the trade. Now the price of the crypto is $50. If you are looking to short the crypto again, and it goes down 50% you only make $25 on this trade. If you short it again and the crypto loses 50% of its value, this time you are only making $12.50.
However, if you are betting that a cryptocurrency is rising there is unlimited upside potential. If a crypto is trading at $100 and it goes up 50% you make $50 the first time around. If it goes up 50% again, you’ve made $75. The next time it goes up 50% – you’ve made $112 and the next time it moves up 50% you’ve made $150.
Therefore you have a disproportionate benefit to being long than to being short. In a way that you don’t with markets that move like 3 or 4% on a big day.
Wintermute will know this and factor it into her search for profits. What do you guys think?