Opportunity cost in crypto markets

In crypto markets, every day we are all bombarded with information and we constantly have to make hard choices, since we have limited capital, time & energy to spend in this area. What coins to buy? What projects will be soon listed? Which ones have the biggest potential? This is where opportunity cost comes in. It represents the potential benefit, when choosing one alternative over another.  

We all felt this struggle, and, especially for a beginner, sometimes it can be a big burden. Feeling you made the wrong choice, that you did not maximize your winning potential or even worst, that you made a stupid mistake by investing in crypto markets.

Here are the 3 categories of opportunity costs that I believe, once you have started a long-term crypto investing strategy, you constantly have to struggle with :

  1. Coins, tokens & projects opportunity costs

As many others, I started investing in crypto in 2017-2018. Obviously, the welcoming was not very nice. I suffered some paper losses, made a lot of dollar cost average, but at some point I realized I have to reevaluate my strategy so that is where the first opportunity cost came in:

  • Which projects do I believe in? Which ones have the highest chance of surviving the long bear market? Which ones have the potential to give me a return of my money, or at least, limit my loses? It was a hard period, but in the end, I chose to sell all my altcoins (NEO, DASH, EOS, etc – spoiler alert: these projects barely even exist anymore) into BTC&ETH. Looking backwards in time, of course, It could have been way better just to sell everything and rebuy at lower prices. But I was in it for the long term, so I am happy with my choice. I limited my paper losses and made my first hard choice, that I am happy with.
  • Another, more recent opportunity cost that arised was when StakeborgDAO came into existence. I considered I had a decent altcoins portfolio, with good projects that were offering excellent staking rewards of up to 100%/year. But still, evaluating the opportunity cost, it made me realize that I either invest in a new project, with way bigger growth potential, with fantastic weekly rewards like StakeborgDAO, or do I still keep some of the other investments? For me, the choice was obvious, I have to maximize my returns!

2) Investments & stable coins opportunity cost

We all know, it is recommended that you don’t invest all your money at once, to keep some cash, fiat, or stable coins to buy eventual dips or whenever a new opportunity arises, to be prepared. But that is hard! Seeing crypto market going up double digits % in a few days, while you have 40% of your funds in stablecoins??? The fear of missing out sentiment kicks in, and it Is a powerful one! Wouldn’t it be better to be 100% invested and maximise your gains?  For me, the answer is NO, because I’ve learned that there are always new opportunities that you have to be prepared for.

3) High risk/high rewards investments, or lower risk/lower rewards opportunity cost

Without going into technical aspects, I discovered that there are a lot of ways to make >40% annualized returns with very low risk :

  • Automated trading bots that, if they are set up correctly and for longer periods, they can give an excellent return, >50% APY
  • Lending stable coins for great rewards of even up to 30-40% during bull markets
  • Arbitrage bots for centralized and decentralized exchanges 20-30%
  • Funding rates arbitrages between exchanges – aprx 30%

But then again, the opportunity costs kicks in. Do you want a stable 30-40% annualized return, which is a fantastic one, but the market goes up way more than 100% in a year? But what if it doesn’t? That’s a choice that everyone has to make.

My strategy is to combine all of the above categories, study projects, invest for the long term, keep a part of my crypto net worth in stablecoins, but at the same time, to try to create automated strategies that will give me a decent return, no matter the market conditions.

Crypto is a tough space, learn, adapt or get left behind!

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  1. Thanks for sharing!
    You mention several notions that are hard to grasp for newcomers like me: automated trading bots, arbitrage bots for centralized and decentralized exchanges, funding rates arbitrages between exchanges and, at the end, you mention about automated strategies.. Do you have any resources/links that you found useful and that you could share about these topics?

    1. Hey Coz, thanks for your comment. Like i mentioned, i did not want to get into to much technical aspects, since it was my first article. Maybe i will cover everything in another article. But still, here are some info to help you understand a bit:
      a) Automated trading bots trade for you in specific parameters that you provide them, and the most easy to understand are the already built-in bots for big exchanges such as Kucoin and Binance.
      https://www.kucoin.com/blog/kucoin-trading-bot-now-supports-4-strategies-how-to-find-the-bot-fits-you-most
      https://www.binance.com/en/support/faq/f4c453bab89648beb722aa26634120c3
      Other type of bots might be those that trade based on specific trading parameters that you provide them (based on technical analysis) :
      https://ftx.medium.com/how-to-use-quant-zone-to-automate-your-trading-324d8d44bf4a
      b) arbitrage bots mean the ones that try to find differences in prices on different exchanges, in order to buy an asset on one exchange and sell it instantly on another one, for a profit. Google this, should be easy to understand
      c) futures markets work based on fees that sellers and buyers pay or receive every 8 hours, so that the exchanges incentivize users to trade as much as possible. Sometimes, there are differences in these fees, rates between exchanges that can create an arbitrage opportunity, again, you buy on one exchange and you sell on another
      As i said, i might create another article soon with more details. These are quite easy to understand but harder to implement or automatise.
      Good luck!

  2. Wow! Thanks for such an insightful topic. Looking forward to seeing more about this.
    Would love also to read your story on the comunity stories page.