#投资理念 Differences in Institutional Arbitrage Strategies and Market Ceilings
Most people will have a question: if institutions are all using arbitrage, can the capacity of this market support it, and will it reduce returns? In fact, there is a clear 'similarity with slight differences' among institutions in the entire logic.
😇 Similarity: The same type of strategy, such as arbitrage, has a generally similar strategic approach;
😇 Slight differences: Each institution has its own strategy preferences and unique advantages, such as some institutions prefer to focus on large coins and deeply explore opportunities in large coins; while others prefer to focus on small coins and are good at coin rotation.
Secondly, from the perspective of market capacity ceilings, arbitrage strategies are the highest capacity stable income strategies in the market, and their capacity depends on the overall market liquidity; a rough estimate suggests that the current overall arbitrage capacity exceeds 10 billion. However, this capacity is not fixed and forms a dynamic balance with liquidity growth, strategy iteration, and market maturity, especially with the rapid growth of crypto derivative platforms, which will lead to an increase in the overall arbitrage space.
Although there is competition among institutions, due to the subtle differences in strategies, different currencies, and different understandings of technology, the current capacity does not significantly lower yields.
Investor Adaptation
As long as an arbitrage strategy has a mature risk control system, the risk is usually very small, and drawdowns rarely occur. For investors, the main consideration is the opportunity cost of relative returns: during periods of relative market stagnation, arbitrage strategies may remain in low yield for a long time; during good market conditions, explosive returns are usually not as high as trend strategies. Therefore, arbitrage strategies are generally more suitable for conservative investors.
🔥 Advantage: Low volatility, low drawdown, during bear markets it can also become a safe haven for funds, favored by more stable capital, such as family offices, insurance funds, mutual funds, and high-net-worth individual wealth allocation.
✨ Disadvantage: The profit ceiling is lower than long-only strategies/trend strategies (theoretically can be from 1x to several times).
Arbitrage strategies have an annualized return of 15%-50%;
For ordinary novice retail investors, personal hands-on arbitrage is an investment with 'low returns + high learning costs,' with an unfavorable risk-reward ratio. It is better to indirectly participate through institutional asset management products.
Funding rate arbitrage is the 'certain return' in the crypto market, but the gap between retail and institutional investors is not in understanding, but in the obvious disadvantages of 'technology, cost, and risk control.' Instead of blindly imitating, it is better to choose transparent and compliant institutional arbitrage products as a 'ballast' for asset allocation.