Previous Reviews:

July 1, 2024 Review: Reanalyzing Bitcoin Hoarding, How Did DeFi Strategies Perform?

June 5, 2024 Opening: [Real Case] How to Hoard Bitcoin Properly, Don’t Miss Out on DeFi Benefits

From June 5, 2024, to August 1, 2024, the cryptocurrency market continued to decline.

Bitcoin's price fell by 6.17%, dropping from $68,424 to $64,201 per BTC. Ethereum's price dropped by 16.2%, from $3,783 to $3,170 per ETH.

This article was completed on August 2, and by August 5, the cryptocurrency market had another big drop. BTC fell below $60,000, and ETH fell below $2,100.

With such a sharp decline, is my 3x leveraged coin hoarding position safe?

In short, the position is very safe and the loss is limited. Compared to traditional hoarding without leverage, the total value of the position only lost an additional 1.22%. However, to guard against a black swan event, I deposited 500 USDT as a margin at 4 PM on August 5, just in case. By 5 PM on August 7, the 500 USDT had already been withdrawn.

1. Why Is Leveraged Downturn Still Okay?

You can click this link to see the real-time changes in my position. Below is a screenshot from August 1.

Due to the price drop, the position decreased from $5,833 on June 5 to $5,117. Assuming the initial $5,833 was equally split into 50% BTC and 50% ETH, the total position value on August 1 would be $5,180, only $63 more than the actual $5,117, with a real loss of 1.12%. Detailed calculations are shown in the table below.

There are two reasons:

1. Main Reason: 8 short contracts hedged most of the downside risk.

2. Secondary Reason: Funding rate income from short contracts increased.

1.1 Main Reason: Hedging Gains with Contracts

The profit and loss from selling contracts can only be seen on the Drift exchange.

From the two images above, we can see that aside from a floating loss of $36.17 on XRP, other shorts have floating gains, with the highest being OP at $300. The cumulative floating profit from contracts is $1,778.51, clearly offsetting most of the floating loss from the BTC and ETH price drop.

1.2 Secondary Reason: Funding Rate Income

The image below shows the funding rate income of $184.53 over the past two months.

Although not much, it can offset most of the USDC borrowing interest.

2. How Effective Was the BTC and ETH Rebalancing?

Short answer: Rebalancing played an anti-drop role during the price decline.

In the last review, a principle was established: maintain a 1:1 position in BTC and ETH. If one increases, sell the excess and buy the lesser.

After July 1, there were 8 rebalancing actions.

After multiple rebalances, the BTC position decreased from 0.1288 to 0.1223, and the ETH position increased from 2.31 to 2.44. Based on the prices on August 1, the total value difference after changes is only $5.

Although rebalancing did not achieve total value growth, it effectively prevented a total value drop, making it worth continuing.

3. Is Leveraged Coin Hoarding Really Attractive?

My answer is—yes. The premise is based on two simple and important understandings:

1. BTC and ETH ETFs have been approved, opening traditional financial channels, and more funds entering is only a matter of time.

2. The US interest rate hike cycle is nearing its end, and a rate cut cycle is about to begin, so more funds in the market are just a matter of time.

The liquidity in the crypto market will continue to increase, and the prices of BTC and ETH will naturally rise. Therefore, leveraging to go long on BTC and ETH is worth it.

Leveraging amplifies both gains and losses, so hedging with 8 short contracts is necessary. Additionally, the price increase of BTC and ETH is still a trend, and no one knows when it will happen. Therefore, be prepared for a long-term battle and reduce the cost of leveraging. Funding rates are undoubtedly a good way to hedge borrowing interest.

Conclusion

We focus on the opportunities brought by the long-term price increase of BTC and ETH. Therefore, recent price fluctuations should not overly influence our strategy.

Now, our focus is on further optimizing our strategy amidst market fluctuations.

1. Dynamically Adjust Positions: The rebalancing strategy effectively reduced losses during the decline. We should continue this strategy to ensure a reasonable BTC and ETH position ratio. This helps maximize gains during market rebounds.

2. Strengthen Contract Hedging: Short contracts had a significant hedging effect during the decline. Continue to monitor and adjust short contracts to maximize hedging effects. Additionally, the funding rate income from short contracts, although small, can effectively offset part of the borrowing interest over the long term.

3. Remain Cautiously Optimistic: Although the market is currently down, based on the approval of BTC and ETH ETFs and the potential upcoming rate cut cycle, we have reason to believe that more funds will flow into the crypto market. Therefore, it is valuable to continue holding and optimizing leverage strategies.

In summary, through reasonable position rebalancing, funding rate optimization, and contract hedging, we can maintain low risk in a volatile market while waiting for the opportunities brought by market rebounds.

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