I think people in the cryptocurrency circle must face a reality: when something is speculated to a high price, it means that it is heavily controlled by a few players, and this part is effectively 'frozen,' while the circulating amount is very small. This will be explained later as to why such operations lead to continuous price increases. This indicates that the number of retail investors truly making profits is very few. The stories of retail investors getting rich are often orchestrated by these major players.

Whether it is the Asian financial crisis of the 1990s, the financial tsunami of 2008, the recent cryptocurrency crash, or even the Tulip Mania hundreds of years ago, they all share the same underlying logic—legal harvesting methods employed by top-tier large speculative funds.

You may hear various analyses and reasons afterward, but those are all illusions. The truly useful knowledge that can help you make money is hidden and belongs only to the top tier of people. What you can see on the market is mostly useless.

But this piece is different. Yes, I am the disruptor, exposing the long-hidden secrets of the financial market to the world. You will find that these deeply hidden mysteries do not require any knowledge barrier; even elementary school students can understand them.

I suggest that before discussing entry and exit points, technical indicators, and chart analysis, you should first understand the most important knowledge, which is how large hedge funds profit through hedging. If you do not understand your opponents, you may not even realize how you are losing money.

The real big players pursue certainty, seeking to harvest our gambling money without risk. To achieve this, they must profit through hedging operations across multiple markets. This article will use Soros's Quantum Hedge Fund as a key case study to help you deeply understand how they operate.

This article is divided into two parts: the first half discusses traditional hedging techniques used by large speculative funds, while the second half focuses on the more aggressive modern hedging techniques exemplified by Soros's Quantum Hedge Fund. If Bitcoin were to return to a few dollars each, how would you profit from it?

If you have sufficient capital to buy 99% of the Bitcoin in the spot market, this means that 99% of the Bitcoin is effectively 'frozen' in your hands, leaving only 1% in circulation. You can raise the price as high as you want because the vast majority of the sell orders in the spot market must come from you. Since the total amount in the spot market is limited, as long as you do not sell, there will basically be no sell orders in the market. With just a little capital, you can drive the transaction price as high as you want.

The principle behind the formation of price movements in the capital market is the average transaction price over each minute connected in a line, and it is unrelated to trading volume. Suppose the original price of Bitcoin is 1,000 yuan, and you hold all the Bitcoin in the spot market. If you place a sell order at 10,000 yuan and then take out another 10,000 yuan to buy, you can see the price of Bitcoin rise from 1,000 yuan to 10,000 yuan in an instant, a tenfold increase.

From this perspective, it seems you used only 10,000 yuan to increase your total assets tenfold, but even if you raise the transaction price to 100 million yuan in the spot market, that is just floating profit on paper. To achieve true profit, you must sell all your Bitcoin to cash out.

Now the question arises: when you intend to cash out all your Bitcoin at 10,000 yuan, you find no buyers willing to buy. What should you do? If you keep selling, you will only crash the market, and in the end, you won't make much.

Now the question arises: when you try to sell your Bitcoin to cash out, you may face a situation where there are no buyers. When buying pressure is insufficient, according to the principles mentioned above, if you force a sell, it will eventually lead to a significant price drop, and in the end, you won't make much, and may even face a loss if the buying pressure is too low, dropping below your cost line without fully cashing out.

Thus, for large funds, operating in a single market alone cannot achieve zero-risk profits; another market must be used for hedging.

Before continuing to explore hedging, let's revisit the above principles of market control.

I provided an extreme example for easier understanding; in reality, as a major player, you do not need to buy all the Bitcoin to control the market.

In fact, when you keep buying Bitcoin, its price will easily rise.

It's a simple principle: as you continue to buy, as long as you don't sell, the potential sell orders in the market will decrease.

The potential sell orders are randomly distributed above the current price; the fewer sell orders there are, the more sparse the distribution becomes. The greater the gaps between different sell orders, the less capital is needed to create fluctuations, or conversely, the greater the fluctuations that the same amount of capital can create.

Of course, it is also possible that most of these sell orders are concentrated in a certain area, but this means that the sell orders above this area will be even sparser, forming a 'vacuum zone.' If the price breaks through this area, it means that the sell orders in this area have been consumed, and there will be very few sell orders above it, making it very easy to rise. We can refer to this area as a 'resistance level.' Once this resistance is broken, it will open up upward space.

Therefore, when you are controlling the market, as your holdings increase, the price of Bitcoin will rise more easily. The higher it rises, the lower the cost to continue pushing it up. Your main costs are concentrated below.

If you are patient, you can even set a strict rule to only buy when the price drops to a certain level. In this way, each time the price comes back, your position will increase, thus reducing potential sell orders above, leading to larger subsequent price increases.

However, controlling the market is merely a means, not the ultimate goal; the ultimate goal is to cash out at a high level. Returning to the earlier point, you cannot know whether there will be sufficient buying pressure to take your positions.

But even if there are buyers at first, as your position shrinks, your control ability weakens, and you may face a situation where, before clearing out half, those who took your position also start selling, causing the price to drop.

Therefore, those major players will begin to think about whether there is a way to lock in profits without losing their control.

--Remember this sentence, and you will find that most of the behaviors discussed later revolve around this sentence.

Thus, a financial derivative market was born, known as 'futures.' Major players realize profit locking by controlling the spot market while simultaneously executing reverse operations in the futures market. We call this 'hedging,' and below, I will guide you through the entire process.

The correct approach is as follows: during the upward movement, establish a short position in the futures market at a high price to achieve a hedging position.

Firstly, the price fluctuations in the futures market operate independently from the spot market and its limited circulation. The liquidity in the futures market can be infinite as long as there is capital establishing long or short positions, with another capital acting as a counterparty. Furthermore, the price movements in the futures market can differ from the spot market, even moving in opposite directions for a short time, but ultimately, it will revert to the spot price. Its fluctuations are entirely the result of the tug-of-war between buyers and sellers. The futures market is leveraged; if it is 10x leverage, then the amount of capital needed to establish a short position is only 1/10 of the total amount spent to buy Bitcoin in the spot market. While establishing a short position, you continue to push the price of Bitcoin up in the spot market—why do this? To ensure that your short position's cost price is at a high level. When this is done, other retail investors will not dare to short, only going long, so your short position will not lack counterparties at this price level. If someone dares to go short, you can continue to drive up the spot price, pushing it to the point of their short position liquidation.

Once a short position is established in the futures market, the layout is complete. At this point, you can boldly sell Bitcoin in the spot market to cash out. If no one takes over, the price of Bitcoin will plummet from the 10,000 mark, and the futures market generally follows suit—because the spot price starts to fall, widening the gap with the futures price, which will inevitably lead some to short, or the original long positions may choose to cut losses (closing long positions is equivalent to going short). Even if, hypothetically, no one shorts, no one would dare to go long. At this time, you can short in the futures market with a small amount of capital to drive the price down.

As a market maker, you are basically guaranteed to profit because even if the cashing out process in the spot market results in a reduced transaction price causing you to lose money, in the futures market, you have shorted, so you will make a significant profit. You will gradually close your position and realize profits as the price continuously declines in the futures market.

--In the futures market, closing a short position is equivalent to going long, which forms a hedge against the action of selling in the spot market; we can call this hedging liquidation.

This process generally involves the following (the red line is the spot market price, and the black line is the futures market price)

In the first scenario above, it is easy to understand that the price drop in the futures market moves in sync with the spot market. As long as the spot price does not drop below the cost price of 1,000 yuan during your sale, you will still profit in the spot market while making a large profit in the futures market. Even if the spot price drops to 1,000 during this liquidation process, if the futures price only drops slightly, you will still make a profit.

The second scenario:

In this situation, during your selling process, the price in the spot market falls below the cost price of 1,000 yuan. However, if the volume you sold below 1,000 yuan is less than the volume you sold above 1,000 yuan, you still make a profit in the spot market. But even if not, as long as the overall decline you experience below 1,000 yuan is smaller than the decline in the futures market starting from 10,000 yuan, your profit in the futures market exceeds your loss in the spot market, and you remain profitable overall.

The third scenario, which is the most perfect situation, is when during your selling process in the spot market, the price surprisingly does not drop, while the futures market declines, indicating that someone is taking your position, allowing you to make substantial profits on both sides.

Under what circumstances would you incur a loss?

This means that the decline in the spot market price below 1,000 yuan may even be greater than the total decline in the futures market starting from 10,000 yuan, like this:

This scenario is considered extreme and nearly impossible because to achieve this, it would require capital to be crazily sold in the spot market while simultaneously capital is being massively bought in the futures market—on one hand, those seeing the spot price drop so significantly are unlikely to dare go long, and on the other hand, you, as the main force in the spot market, would not recklessly crash it.

However, one possibility is that during the entire process of selling out in the spot market, the spot market does not fall but even rises sharply, and the futures market price follows suit—like this:

Although there are losses in the futures market, this situation means that in the spot market, a perfect cashing out is achieved, so overall, there is a profit.

Back in the Bitcoin market, as long as the major player has sufficient capital to control the market, they can remain in an unbeatable position.

Some friends may ask, after pushing the price up in the spot market, how can the major player guarantee that there will definitely be counterparties in the futures market when shorting?

In reality, the positions of major players are distributed across the entire wave, whether in the spot market or in short positions in the futures market, only the distribution ratios differ. This means that buying in the spot market and shorting in the futures market are conducted simultaneously from the start.

Only when the price is at a low level does the volume of long positions in the spot market weigh more than the volume of short positions in the futures market. However, as the price rises, the marginal increase in the buying volume in the spot market decreases, while the marginal increase in short positions in the futures market increases.

As shown in the diagram:

The above diagram shows the distribution of long and short positions in hedging. When the price in the spot market is low, the buying position is heaviest, while the short position is lightest. As the price rises, this reverses.

However, when starting a hedging liquidation, the most sales occur in the spot market at the top, while the least liquidations occur in the futures market at the top, with clearing positions increasing marginally as the price declines.

Why take this approach? Why not directly buy all at the bottom of the spot market, drive up the price, and then short at the high price in the futures market?—If viewed from a profit perspective, doing so would certainly be ideal, but in reality, there is not just one major player in the market. This approach provides good defensiveness, allowing for a full retreat at any time.

First, an important reason already mentioned is that if your futures short positions are established after the spot price has risen, you may face a problem: when you establish a short position, there is no counterparty, meaning no one is going long. In this case, if you force a short position, it can easily push the futures price down prematurely, preventing your main short position from being established at an ideal price. However, if you establish a short position in the futures market while buying in the spot market to push the price up, you can avoid this situation because when the spot price rises, the futures price is unlikely to lag behind. When the price difference between the spot and futures reaches a certain level, someone will inevitably see the profit opportunity and rush in to go long. At that point, you can place your short orders with confidence.

As mentioned earlier, when you continuously buy in the spot market, the price will inevitably rise during this process because the sell orders are continually decreasing, all going into your hands. Although the price continues to rise, the funds needed to push it higher are decreasing, making it easier to rise as sell orders diminish—this is why something with a fixed or minimal total amount is easy to speculate on, such as Bitcoin and precious metals; the more it rises, the easier it is to continue rising.

Thus, your capital distribution in the spot market (also your position distribution) decreases, so your average cost price is concentrated below.

During this process, for instance, when the price is still low, if another major player enters the scene and also wants to control the market, eating up all the spot chips while having more substantial capital than you, you can follow this trend, sell in the spot market, and cash out. Even though your short positions in the futures market are losing, because your short position is much smaller than your buying position, your overall profit is greater than your loss.

At this point, someone might question, if I don't start shorting right away, I won't incur losses, wouldn't that be better?

Have you considered another scenario where negative news emerges, and others short in both the spot and futures markets? From a control perspective, this situation is even more favorable for your accumulation in the spot market, leading to a lower cost price. Additionally, since you established a short position in the futures market early on, you realize profits there.

--So the essence of hedging lies in being in an unbeatable position regardless of circumstances.

At this point, some persistent friends may continue to ask: if there are other retail investors or even institutions shorting at a high level in the futures market, competing with you for counterparties, and they are incredibly resolute, regardless of how much you push up the price in the spot market, they firmly hold their short positions and have sufficient funds not to be liquidated, what should you do?

Don't forget, you already hold most of the Bitcoin in the spot market. Since the spot market is under your control, those shorting in the futures market are all 'shorting without goods.' What does shorting without goods mean? It means they cannot hold their positions until delivery because they cannot produce the goods for delivery, so they must close their positions before then.

Closing a short position is actually going long. As a major player, you only need to place your shorts above the current futures price, and they will close their positions themselves, pushing the price up, and then transact at your short price.

You can even be more aggressive and go long to counter their positions because you know they will inevitably close their positions first.

Therefore, as long as you have sufficient funds to control the market in the spot market, you can easily and infinitely push the spot price higher. As mentioned earlier, the higher you push, the less cost you need to use. Meanwhile, in the futures market, you don't need to worry about lacking counterparties when shorting.

So, to summarize simply, the profit-making method of major players is to lock in profits through market control and hedging, trading time for space; all that is needed is patience.

Understanding the above tactics of major players, how should we as retail investors leverage this to earn profits?

First, it is essential to understand that large funds employing the methods mentioned above are bound to win; you cannot earn their money. You earn the money of other confused retail investors. Ultimately, it's about profiting from the information gap.

Theoretically, as long as we know the position of the major players in the spot market, we can infer to what extent their position in the futures market has reached before we can start shorting.

However, saying it is easy doesn't mean we can know the positions of the major players. Moreover, there might not be just one major player in the market but several, complicating the situation significantly. It would probably take a whole book to explain.

So what can we retail investors do?

I am merely taking some identifiable variables, some principles or phenomena that are universal regardless of whether there is a major player controlling the market. We must first understand and utilize them.

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