Rapture #96: Ways I aim to Make Money in a Crypto Bear Market

Rapture #96: Ways I aim to Make Money in a Crypto Bear Market

Since I give it a 45% shot we are currently in a prolonged bear market, a la 2018, I thought it might be helpful to introduce some ways I am considering generating returns without having directional market exposure. Byron Gilliam of BlockWorks Group came up with most these strategies and conveyed them in the latest BlockWorks Group latest newsletter, which can be found here.

I found them so insightful that for today’s newsletter, I thought I would just reproduce the best strategies for you! Note that they are 100% ripped from Byron Gilliam's research, with only some new additions here and there by myself. So, if you like them, follow the man on Twitter and subscribe to BWG’s newsletter.

Bear Market Strategies

Sell protection: If one is reluctant to put new money into the market at this level, make some yield while one waits for the crash by selling puts. Writing $2,000 strike ETH puts will make about 20% annualized. Or level it up with an options vault that gets extra yield by working the collateral: the StakeDAO ETH put selling vault yields 57% currently.

Liquidate people: In DeFi, one gets to play prime broker and liquidate overleveraged borrowers. Deposit the pegged stablecoin LUSD with the Liquidity protocol and one's funds will be used to buy ETH from margin-called sellers. The advertised APY is 12% at the moment and one would presumably do better than that in a bear market.

Avoid crowds: In bull markets one wants to run with the pack but when things get choppy one wants to be off on their own. One won’t have much company trafficking in non-USD stablecoins at the moment, which is evident in the high APYs on offer for providing liquidity. Yearn Finance’s vaults on KRW, GBP and EUR currently all yield about 40%. There are risks, of course, but if these were listed on a stock exchange, they’d likely be FAR more expensive. They would likely be valued like a slightly suspect, moderately leveraged closed-end mutual fund yielding 13%-ish.

Be a hedge fund: If one is based outside the US , one can go to Perpetual Protocol and short perps just like hedge funds short futures — it’s a delta neutral way to make 5% to 15% APY on the basis trade (arbing the futures to spot premium/discount). Or go to Lemma Finance, which automates the process (on Lemma it only works if the basis is positive, however).

Lend to hedge funds: If one runs in the type of social circle where being a hedge fund would make one unwelcome, consider just lending to them instead. On Maple Finance one can lend USDC to Alameda Research at 8.5% and get MPL rewards for a total APY of 16%. There is counterparty risk, of course, though Alameda likely won’t stop making money anytime soon — and would likely make more in a bear market. Of course, many of these pools are permissioned, meaning that you will have to go through KYC/AML in order to lend to funds like Alameda, BlockTower, etc.

User Formulated Lending Pools: Unlike Compound or Aave, which sets the collateralization ratios, reserve rates, and other risk factors for a lending pool via the governance process, Rari Capital's Fuse feature allows users to create their own lending pools with their own parameters on risk. While the risk of these pools defaulting and not having enough capital to repay lenders is far higher than the risk offered on Compound/Aave, the yields are also far juicer. For example, You can earn 16.27% APY on USDC and 19.45% APY on DAI in their Tetranode pool right now.