Introduction: The Retail Investor's Dilemma in New Crypto Listings
With the emergence of innovative cryptocurrencies like Monad, MMT, and MegaETH, many retail investors find themselves in a predicament: how to convert substantial paper profits into tangible gains. While a common hedging strategy involves opening equivalent short positions in the futures market after acquiring the asset, these tactics often become traps for retail investors when it comes to new coins.
Due to the limited liquidity of new coin futures and the abundance of outstanding tokens, influential players can exploit high leverage, elevated funding rates, and precise pump-and-dump schemes to force retail investors' short positions to close, effectively zeroing out their profits. For retail investors lacking bargaining power and over-the-counter (OTC) trading channels, this presents a near-impossible dilemma. Faced with such manipulation, retail investors must move away from 100% precise hedging strategies and adopt a more diversified, low-leverage defensive approach.
From Managing Profits to Managing Risks: A Shift in Mindset
Instead of solely focusing on securing profits, investors should prioritize risk management by implementing the following strategies:
- Cross-Exchange Hedging: Open short positions on an exchange with high liquidity (serving as the main hedging position) and open long positions on another exchange with lower liquidity (serving as a cushion against forced liquidations).
This "cross-market strategy" significantly increases the costs and hassles for manipulators while also capitalizing on funding rate differences between exchanges. In the volatile environment of new coins, any strategy involving leverage carries inherent risks. The retail investor's ultimate victory lies in adopting multi-layered defensive measures, transforming the risk of liquidation from a "certain event" to a "cost event," until they can safely exit the market.
I. The Real Predicament of Retail Initial Investment
- No Profit Without Hedging, But Hedging Leads to Targeting
In actual initial investment scenarios, retail investors face key timing difficulties:
- Hedging in the Futures Market (Pre-Launch Hedging): Retail investors receive futures tokens or locked share vouchers before the opening, not the actual asset. At this time, a contract (or IOU voucher) already exists, but the actual asset has not yet been traded.
- Restrictions on Hedging Actual Assets (Post-Launch Restrictions): Although the actual asset has entered the wallet, it cannot be sold immediately and efficiently due to restrictions on withdrawal/transfer time, extremely poor liquidity in the actual asset market, or exchange system congestion.
Remember: The purpose of hedging is to secure profits, but the key is to manage risks. When necessary, you should sacrifice part of the profit to ensure the security of the position.
The Key Point in Hedging: Only Open Short Positions at High-Yielding Prices
For example, if your initial public offering (ICO) price is $0.1 and the current price in the futures market is $1, a 10x increase, then "risking" opening a short position is cost-effective because it secures a 9x return and increases the cost for manipulators to manipulate the price. However, in practice, many people blindly open short positions to hedge without looking at the opening price (assuming the expected return is 20%, which is really unnecessary).
II. The Upgraded Hedging Strategy - Serial Hedging
Neglecting the complex calculations related to the beta and alpha coefficients of the asset and its relationship with other major currencies for hedging, I present here a relatively easy-to-understand "hedging after hedging" (serial hedging!) strategy. In short, it involves adding an additional long position to the hedging position (short position) in a timely manner to prevent this position from facing forced liquidation. It sacrifices some profit for a margin of safety.
III. Hedging Strategy Based on Liquidity Differences
The Core Idea: Use Liquidity Differences to Hedge Positions
- Open short positions on an exchange with good liquidity and a more stable pre-market mechanism: Take advantage of its large depth, which requires manipulators to invest more capital to blow up short positions. This greatly increases targeting costs and serves as the main profit-insuring center.
- Open long positions on an exchange with lower liquidity and high volatility: Hedge on the short positions on the first exchange. If there is a violent rise on the first exchange, the long positions on the second exchange will rise, offsetting the losses of the first exchange.
IV. Calculations of Serial Hedging Strategy
Assumptions:
- 10,000 ABC actual assets.
- ABC value is $1.
- Short: Exchange A (stable) - $10,000.
- Long: Exchange B (low liquidity) - $3,300 (such as ⅓, this value can be deduced from expected profits).
- Actual assets: 10,000 ABC worth $10,000.
V. The Essence of the Strategy: Sacrificing Profits and Reducing Risks
The beauty of this strategy is that it places the most dangerous position (long position) on an exchange with low liquidity and places the position that needs the most protection (short position) on a relatively safe exchange. If manipulators want to blow up short positions on Exchange A, they must:
- Invest a large amount of capital to overcome the deep liquidity of Exchange A.
- The raised prices will simultaneously cause the long positions on Exchange B to profit.
The difficulty and cost of targeting are greatly increased, and the operations of manipulators become uneconomical. The market structure (liquidity differences) is used to create defense, and the differences in funding rates are used to generate additional income (if any).
EN
