The chief information officer (CIO) of the renowned BlockTower Capital crypto portfolio management firm, Ari Paul, said that the crypto market had introduced some specific liquidity options since 2017 when Bitcoin (BTC) hit about $20,000 in December of that year. Ari Paul said that “outside the Bitcoin (BTC), it’s tough.”
Paul focused the new thread that he posted recently on the crypto risk management, stating that “crypto risk management (and how it basically didn’t exist outside of holding cash) in mid-2017. Since then, a variety of low-risk hedging options have been born with decent liquidity.”
“CME futures provide an easy and low-risk way to establish short exposure to BTC. LedgerX provides decent liquidity for trading BTC options, and OTC desks are starting to offer tighter markets and more liquidity on the same,” Ari Paul also added. According to Paul, the crypto market is tight at the moment, outside the BTC.
“Outside The Bitcoin (BTC), It’s Tough” In The Crypto Market, Said Ari Paul, BlockTower Capital CIO
“Outside of BTC, it’s tough. You can borrow ‘physical’ assets from some lending desks and short them, but this entails some counterparty risk and is a minor operational hassle to execute. But a reasonable choice for smallish amounts (<$10m) for top 10 coins,” Ari Paul explained.
Paul also focused on exchange lending markets, and he stated that such operations could “cause unexpected losses due to liquidation mechanics.” As he explained, shorting on many exchanges is a risky thing to do, and the most recent example of Poloniex supports his theory. On May 26th, Poloniex announced a severe price crash in the CLAM market, which led to a total of about 1,800 Bitcoin (BTC) in losses for approximately 4% of the exchange’s clients.
“And the exchanges that currently provide levered shorting are very risky in terms of counterparty risk. You can’t cold storage a short position. So for now, BTC is easy, hedgable most other things are not. The defi stack provides some options for hedging Ethereum assets,” Ari Paul, BlockTower Capital CIO said. Besides, crypto market exchanges are now struggling to come up with new methods to provide liquidity and leverage for their customers, in a time when institutional investors are entering the market.