Crypto Hedge

In crypto, there is something call perpetual futures which is basically a gambling option being a coin's price direction (up or down). In this space, there is something called a funding rate which the majority pays an interest to the minority to incentivise them for betting against them. Most of the time, it is the longs paying the shorts (long means bet price go up, short means bet price go down).

The objective of this strategy is to farm the funding rate. The default funding rate is 0.01%/8h, that is 10.95% pa excluding fees. So if you open a 1x short position of 10k for example, you can make 10.95% of your 10k which is SGD 1,095 at the end of the year.

What is the catch? The catch is you can get liquidated (losing all your money). An example to illustrate this point will be bitcoin. Lets say bitcoin is 100k and you enter 1x short. If bitcoin goes 200k, you get liquidated as the price has increased by 100% which means u lose 100%. You stand to make a profit if you can make back enough interest before BTC hits 200k, basically a race against time.

To mitigate this risk of liquidation, the idea is to split your capital into 2. 50% use to buy the actual asset and remaining 50% to open a 1x short position. This approach allows you to preserve your capital at 100% regardless of price volatility. This also means you are effectively earning interest on only 50% of your capital.

I have been doing this for awhile and usually the annualised APR is 20-30%. Just Feb 2024 it was 10% in a month because of an influx of degenerate gamblers going into long. As you can imagine, your interest depends on degenerate gamblers. So assuming 20% APR with 50% capital, you are still effectively earning 10% APR on your entire capital.

Binance used to be a good platform to do this but SG has banned all crypto platforms offering leveraged services (aka the perpetual futures) since too many SG fell into financial crisis during luna and FTX crash. So the alternative we have now is decentralised exchange which is DEX for short.

The beauty of DEX is that you do not have the risk of centralised entity going bankrupt and having your money vaporised like FTX. Currently, I am using dydx (https://dydx.trade/markets), you can check out the funding rates of BTC pair, it is currently 0.005%/hr at the time of writing, giving an annualised APR of 43.8%.

The point I am sharing this is because you do not have to monitor markets, or worry about price volatility. Anybody can do this and sleep well at night while making your money work for you.

Why am I sharing this? I want to help young folks who want to get into investing but lack the experience to get into it. I want to share a different way to do it in a safe, transparent manner. Most importantly, you control your money without having to leave it in someone's hands to do it. If it is not obvious, you can close your position anytime and withdraw anytime.

For those have questions, feel free to leave comments and I will try my best to answer.

For those interested, you just have to do the following: 1) Find a way to load SGD to your crypto wallet (I use metamask). There are tons of tutorials out there.

2) Buy 50% of whatever coin you have decided on uniswap or centralised exchange. I do not recommending holding coin in exchange, best in your wallet always.

3) Connect your wallet to Dydx and open 1x short to that coin you bought.

That's it.