Thread by @worstcontrarian

ever since i read Sinclair's book i have been thinking a lot about collecting risk premia vs looking for alpha

he gives a break down on risk premia vs inefficiencies in this video, i urge you to watch!

quick thread on my thoughts on crypto risk premia

1/x

i think most ppl will agree crypto has good trading opportunities

however, in crypto counterparty & rug risk is higher (relative to tradfi)

so naturally you'd expect the risk premia you can collect to be higher too

but how much higher?

2/x

short answer is idk

BUT some random protocol offering me 20% for depositing stablecoins probably isn't work the risk

you think you are getting 20% but say the probability of a rug pull is 15%

so your adjusted return is only 2%, a bank has a higher rate, so why bother?

3/x

once you find some good trades, the next question is what % of port should you put on?

is 50% in these trades & 50% cash in the bank too conservative?

what if the trades are illiquid & you need to hedge?

the coin could 5x & you get liq'd at the top because u ran out of $

4/x

the % to leave in cash is kinda what i think about a lot

i actually am pretty risk averse & i have no parachute from parents

if i go broke i will probably be reintroduced to the work force lol

if you go 50% your crypto ev is halved which isn't ideal

5/x

the next thing is looking for alpha/inefficiencies, this is how i am spending my days now

i used to be pretty active with a ton of bots going on now a lot of those trades have tried up

6/x

when you are used to trading a alot via market making, stink bids etc it can be hard sitting on your hands

however, im not here to have fun im here to make money

plus trying to find cross exchange fiat arbs has been keeping me busy 😉

7/x

my strategy from here is to keep grinding and looking for good trades

the probability of there being another bull market is probably not 0%

if you are set up and across everything once it happens you should be in a good position to take advantage of it

8/x

if there isn't a bull market my $ returns should still be higher than i'd expect to make at a day job

therefore i think it is +ev for me to continue to trade

9/x

anyway if you have any feedback or thoughts they are always appreciated

thanks for taking the time to read my incoherent rant

typing it out helped me solidify my current thought process🫡

fin/x