Quantitative Arbitrage Strategies: The Path to Stable Returns in the Crypto Assets Market

Recently, with the intensifying fluctuations in the Crypto Assets market, quantitative Arbitrage strategies have become highly favored by investors due to their stability and risk control capabilities. Two seasoned quantitative trading experts recently shared their in-depth insights on this strategy in an online seminar.

Both experts have a background in traditional finance and entered the Crypto Assets market in 2018. They believe that the high volatility, significant retail investor proportion, and overall immaturity of the crypto market provide an ideal environment for quantitative strategies. Additionally, unique mechanisms such as perpetual contracts and funding rates have created new arbitrage opportunities.

The core logic of quantitative arbitrage is to profit from the price difference between spot and perpetual contracts. The specific operation involves buying the spot while shorting the perpetual contract, earning income through the funding rate paid for holding the long position in the perpetual contract. The advantage of this strategy lies in achieving market neutrality, unaffected by price fluctuations.

To ensure long-term stability, experts have adopted a unified margin account to integrate fund management and provide basic protection through the deep liquidity of blue-chip coins. They also implement a dynamic rotation mechanism, monitoring the funding rates of mainstream coins daily and adjusting the portfolio in a timely manner to optimize returns and risks.

In the face of market volatility and risks such as negative funding rates, the quantitative team has strict risk control measures in place. They will timely reduce positions or reallocate based on drawdown data and set stop-loss mechanisms, such as removing the coin from the portfolio if the funding rate is negative for 5 consecutive days.

Compared to directly holding Bitcoin, quantitative arbitrage provides a low-risk, stable return option for risk-averse investors. Experts suggest combining coin holding with quantitative arbitrage to achieve enhanced returns and risk diversification.

According to historical cycles, experts expect that the current high-yield phase of the bull market may last for the next 6 months. Even if we enter a bear market, quantitative arbitrage can still maintain low drawdowns and stable returns through refined management and multi-coin allocation.

In practice, $1 million in funds can be used to buy $2 million in spot, while shorting an equivalent perpetual contract, with leverage controlled within two times. The use of a unified margin account greatly simplifies the operational process, increases efficiency, and reduces risk.

Experts emphasize that although the drawdown of quantitative arbitrage is relatively low, there are still risks such as price spread volatility and negative funding rates. They manage these risks through strict stop-loss rules and multi-coin allocation. In extreme market conditions, they adopt measures such as diversifying positions and dynamic rebalancing, relying on advanced technical systems for quick responses.

The performance of quantitative arbitrage varies between bull and bear markets. In a bull market, the annualized return can reach 20%-30%, while in a bear market it is around 8%-10%. Even in a bear market, this strategy can still provide robust returns by optimizing coin allocation.

Experts liken quantitative arbitrage to an upgraded version of cash management enhancement tools in traditional finance, believing it is particularly suitable for investors transitioning from bonds or money market funds. For institutional investors or high-net-worth clients, it is an ideal choice for the robust portion of asset allocation.

Finally, experts point out that even in extreme market conditions, such as the "3·12" event in 2020, quantitative arbitrage strategies can still cope with risks by quickly reducing positions, focusing on blue-chip coins, and utilizing technical systems for rapid adjustments, even capturing excess returns after the market recovers.

Overall, quantitative arbitrage strategies provide investors with a way to achieve stable returns in the Crypto Assets market, particularly suitable for those seeking low risk and stable returns.