- Bitcoin price is down quite a bit.
- Markets been rough lately now searching for the safest
ways to earn passive income in crypto, even if
token prices are falling faster than Bambi on Ice.
And I found it, a strategy that doesn't care
if Bitcoin is up 50% or down 20%.
This is Spot Futures Arbitrage bots.
And don't worry if that sounds intimidating.
Within the next couple of minutes,
I guarantee you'll have an AHA! moment.
And until then, just think of these bots as
automated fee collectors that don't give a rats *** if
the market is up or what Elon is tweeting.
First, let's set up some bots so I can
show you my profits later in the video.
I'm using Pionex to do all this, which
is linked in the description below.
On Pionex, I'm going to click Earn and then
Moderate mode because this is the safest mode to use these bots.
I'm going to put $2,000 into this bot,
click Create and we're good to go.
Then I'm going to test out a few in Aggressive mode
going with Bitcoin first, $2,000 into the Bitcoin bot
and I'm going to leave that on 2X Leverage,
click Create and wait for that to set up.
Now this can take a while to
set up, especially for smaller coins.
And I'm also going to set up
three additional aggressive bots.
To add a little bit of spice to this experiment,
we're going to go with AVAX, VET and DOGE.
The total amount invested is just shy of $10,000.
And believe it or not, these bots can make
up to 50% APR with very little risk.
But that begs the question, how does it work?
What are Spot Futures Arbitrage bots and why couldn't
they come up with a more catchy name?
Let's break this down piece by piece.
First, Arbitrage. Arbitrage is the practice of buying and selling
the same asset in different markets for a profit.
A fascinating example is Sam Bankman-Fried,
the 29 year old worth $22 billion.
He made a huge chunk of money
in crypto early through crypto arbitrage.
He noticed that due to demand for Bitcoin in
Korea, prices of a single Bitcoin could trade for
as much as 50% higher than US prices.
This meant he could buy a Bitcoin for $10,000 in
the US and offload it for $15,000 in Korea.
But this had issues, regulations were tight and it
was hard to offload a ton of money.
So he eventually moved over to Japan.
Japan had a lower premium at only 15%,
but he could move much more money.
This resulted in him making "literally
10% per weekday, which is absolutely insane."
So in summary, arbitrage is profiting off of
price differences of the same asset, but the
whole title is Spot Futures Arbitrage bots.
So what are Spot Futures
Arbitrage bots in this context?
In this case it refers to the markets
you are invested in through this bot.
When investing in one of these bots,
you are actually buying two different assets,
a spot position and a futures position.
The spot position is no different
than a regular old buy.
If you flat out bought $100 in Bitcoin, this would be
a spot position, also referred to as a long position.
A futures position, on the other hand, is a
bet on the future price of an asset.
A futures position can be long or short.
A long futures position is similar to a
spot position in that you're betting that prices
will go up in the future.
A short position is a bet that prices will go down.
You make money if the price
decreases on a short position.
A purchase into one of these bots splits the
buy between spot and short in the market.
And this has a fascinating result.
It's very hard to lose money when you do this.
So let's say you invested $1,000
into one of these bots.
$500 would be similar to a regular buy,
a bet that prices will go up. $500 would be short,
a bet that prices will go down.
The result is your investment dollar amount
never changes much, because if prices go up,
your long position makes money.
If they go down, your short position makes
money, meaning your $1,000 stays right around $1,000.
Now you're probably wondering, how is it possible
to make any money if you're betting with
and against the market at the same time?
It sounds like something a crazy person would do,
but this is where arbitrage comes in.
So let's piece this together.
Spot futures arbitrage bot.
We know spot and futures are the types
of buys that we're making, betting for and
against the market at the same time.
We know arbitrage is profiting off of price mismatches.
And bot, of course, just means a program that does everything
for us so we don't have to sit at the computer
and monitor things all day like some kind of hermit.
So what is the arbitrage?
Where does the profit actually come from?
Well, this is from something called the Funding Fee,
also referred to as the Funding rate.
This is a fee paid to holders to help
ensure market prices are exactly where they should be.
The thing is, traditionally in futures markets, there is
an expiration date, meaning you could buy a futures
position betting on the future price of an asset.
But that position would eventually expire.
Usually this is done quarterly or monthly.
The reason for this is prices can get way off track.
Regular buy and sell pressures in the market
can make the spot price and the future
price of an asset vastly different over time.
An expiration date essentially creates a reset button
so prices are set back on track.
But this comes with an issue.
Investors have to constantly re-up their contracts
if they want to stay in those positions.
And that's why perpetual contracts were created.
Futures contracts that never expire, but because they
never expire, there needed to be a way
to keep prices between the regular market and
the futures market in line.
They need to be right around the same price.
It's easiest to think of this like a balancing scale.
You have long positions on one side and short on
the other whenever prices decrease too far on one side.
A funding fee is kind of sprinkled on top
to incentivize investors to move over to that side.
And this funding fee can be quite high.
You can get as high as 1% daily in large Bull runs.
Here's an example of a funding
fee at 0.4% every 8 hours.
Meaning if you had $10,000 invested, you would
make $120 per day nearly risk free.
And that's because the beauty of these
bots is you are market neutral.
You don't make or lose money no matter where the
market heads, but you still earn that funding fee.
Now, 1% daily isn't normal, but it's fairly common to
make 15% and up to 50% APR.
Urgent intermission.
So my bots have been running for about a
week now, and I ran into an issue.
The crypto markets have absolutely been crashing with
major cryptos down 30% to 50%, and this
has thrown a wrench into my plan.
Now, I think it's important to be transparent and
show how much I've actually made so far.
Here are the bots.
The good news is, all of them are
positive except for one, DOGE. With DOGE,
I'm down less than a dollar though.
So in the last week I only profited $4.06 on $9,706.
That comes out to about a 2.2% APR,
which of course isn't ideal.
Now, I'm not mad about that, because in the
last week, if I just held those five cryptos
outright, I would have lost over $1,700.
So making $4, I'll take that
any day over losing $1,700.
But this highlights the need for a new strategy.
And this begs the question, why did this happen?
I thought that these bots were market agnostic.
Let me explain.
So remember the balancing scale between
regular sellers and short sellers.
Right now because cryptos are crashing,
this has led far more investors to sell short,
betting that the market will go down further, tipping
the scales and decreasing the funding fee temporarily.
Looking back at my bots, you can see
that the funding fee is actually negative right
now, and this is pretty rare.
According to Pionex's documentation, this only
happens about 10% of the time.
Now, It's not the end of the world because
I still make money if the fee is slightly negative.
But unfortunately, sentiment dramatically
impacts funding rates.
Here we can see a piece of research
from Binance that shows funding rates increase and
decrease with the price of Bitcoin, which makes
total sense if you think about it.
Because funding rates are a market equalizer, they are needed
most when there's a ton of demand on one side
to go ahead and equal out those balancing scales.
Because of this, I'm going to stop my
aggressive bots, and I'm going to place all
of that money into the moderate bot.
The reason being that rates are actually
higher in the moderate bot right now.
It's also important to note that the funding rates
that you see are paid out every 8 hours.
Now, from here, I'm going to report back
on the profits with this entirely new strategy.
Now, spot trade arbitrage bots are very low
risk compared to most things in crypto.
But that doesn't mean there is zero risk.
With the moderate bot, especially, there is about as
close to zero risk as you can get.
The only thing I can think of is some kind of
API issue or bug in code that could cause some problems.
However, this has a very low probability.
With aggressive bots, there's slightly more
risk because you're taking on leverage.
This means there's a small chance of being
liquidated if the price of your crypto, for
some black swan reason, dropped extremely quickly and
then the bot failed to rebalance the position.
What I like about Pionex, though,
is they have an insurance fund.
In case of rare events, Pionex charges 10% of
profits for running these bots, but half
of that goes to their SAFU fund.
Basically, this fund is there in
case a cataclysmic event happens.
The results of the experiment are in.
After the first day, I was already on a better track,
profiting $2.5, day one, which
of course, doesn't sound groundbreaking, but that's like a
9% annualized return, more than something like the S&P 500,
with next to zero volatility risk.
From there, the market downtrended a
bit more and rates slightly decreased.
After ten days, the total profit came out
to $15, or about 5.5% annualized return.
Again, I can't be mad because crypto in that time
dropped faster than a fat kid down a water slide.
And so I'm excited that I made
money when the market was down.
And I'm even more excited that when the market goes
back upwards, I will make far more than 5% APY.
That's because a friend of mine who put me onto these bots
Averaged 27% APY over 400 days on this type of bot.
So that means during a bear market, It might
take as much as $600,000 to profit, $100 a day,
but averaged over time at 27% APY,
it would take more like $135,000 invested.
Of course, this can be scaled
down to any investment size.
In order to make $1 profit per day, you'd
only need $1,350 invested according according to these numbers.
So again, I'll have these bots linked
in the description below.
From here, if you're interested in other
crypto passive income ideas,
check out this video on screen.
Now I would like to thank you so much for watching
and I hope you have a profitable day!