The crypto market has a reputation for being extremely volatile. The crypto winter of 2022 has seen some digital assets fall by over 40% in a single day. As a result, it’s now essential more than ever for individuals and institutions alike to adopt trading and investment strategies that protect them from crypto market volatility. One of these methods is Dual Investment.
Dual Investment Strategies
Dual Investment is a (non-principal protected structured) savings product, providing a healthy yield with two cryptocurrencies. After the subscription, opt for the asset to invest in, the deposit currency, subscription amount, and settlement date. The return would be denominated in the deposit or alternate currency.
We will take a closer look at Dual Investment products and some strategies. Some exchanges formulated this product to make it possible for investors of all sizes to earn decent returns on their digital assets, regardless of market conditions. With Dual Investments, you can hedge a fixed price and profit from the relative price distances of two crypto assets. While navigating the volatile short-term market, you can easily take profits, buy dips, and earn interest on your crypto and stablecoin holdings.
Ideally, Dual Investment Products in exchanges offer two main features – the “Buy Low,” and the “Sell High” Dual Investments.
Sell High allows you to sell your cryptocurrency at a predetermined price if the market price exceeds the target price on the settlement date.
To begin using the Sell High product, you must first deposit your crypto asset. In this case, stablecoins are not accepted. After this, the platform automatically offers you a combination of target prices and settlement dates with the lowest risk, although users can select any combination that suits them depending on their risk tolerance.
The product must be “exercised” to use the Sell High Dual Investment product. This means that, for the product to be exercised, the settlement price must be greater than the target price and vice versa.
If the product is exercised, the order is filled, the platform will sell the subscription amount and accrued interest at the target price, and the user will receive the sum in BUSD (in the case of the Binance exchange). However, if the market price is below the target price on the settlement date (not exercised), the order will not get filled, and the user will bring back the subscription amount. As a plus, the user will still receive interest income for the period of the Dual Investment, which will be paid in BUSD.
Meanwhile, Buy Low allows users to buy cryptocurrency on the settlement date, provided the market price reaches the target price. To use the Buy Low option, users must deposit an amount in stablecoin like BUSD or USDC. Then a combination of target price options would pop up, allowing users to choose their preferred target price to buy the selected cryptocurrency.
If the market price is below the target price on the settlement date; in that case, the order will get filled, and the user’s subscription amount and accrued interest will be used to buy BTC or another selected cryptocurrency at the target price. However, supposing the cryptocurrency’s price is above the target price on the settlement date, the order will not get filled, and the investor will get the locked stablecoin back plus accrued interest paid out in whichever stablecoin they selected initially.
Adopting Dual Investment is undoubtedly a way for investors to hedge their assets against inflation and volatility. However, there are some strategies when using the product that can maximize profits for investors; we’ll be talking about some of them shortly!
Growing Untraded Crypto Assets
With this strategy, you don’t necessarily need to speculate whether the market will go up or down; you can make profits even when the market is relatively stable or moving sideways. The goal here is to profit from the interest accrued from depositing assets.
The first step is to select the Sell High Dual Investment product. To illustrate this strategy, let’s use a DOT (Polkadot) product and assume its current price is $10
We’ll then choose a target price, say $12 for DOT, with a two-week settlement date. In this case, the DOT price must remain stable or decrease slightly and fail to meet the target price before you can make profits.
Assuming on the settlement date, the current price of DOT is $9, you will be able to get your deposited DOT and receive all the earned annual percentage yield (APY), giving you additional overall profit on your asset.
Earning on Stablecoin Assets
This strategy allows you to earn interest on your stablecoin asset. The process is very similar to the previous one because, in this strategy, we don’t want to reach the target price.
In this case, we’ll use the Buy Low Investment product. For this illustration, we’ll use an ETH product bought with USDC, with an initial price of $2,500.
We’ll then pick a target price of $2,300 with a settlement date of two weeks. To earn stablecoin APY, we hope that ETH’s price remains stable or increases and doesn’t meet the Target Price.
If, at the Settlement Date, ETH’s price increases to $2,700, you can withdraw your stablecoin at the new ETH price in addition to the accrued interest during the settlement period.
Compound Earning in a Volatile Short-Term Market
This product is more complicated than the other strategies above, and It involves leveraging the volatile markets to make short-term profits. The process consists of a combination of Sell High and Buy Low Investment products.
For this strategy, we’ll select the Sell High Dual Investment product and use a BTC product for this illustration. Let’s assume the asset’s current price is $25,000. We’ll then pick a target price of $30,000 with a settlement date of two weeks.
Assuming the market was volatile in the settlement period, one of two things may happen.
If the target price isn’t met, the investor may withdraw his BTC and earn APY. The investor may set another target price in Sell High to make more profits.
If the target rice is met, you’ll sell your BTC at $30,000. You can now place a Buy Low order, purchase crypto at a lower price, and earn interest.
If the target price is met in the Sell High product, the investor then goes for the Buy Low order to gain more profits. If the target price isn’t met, the investor adjusts the price in the same order until the target is met.
The compound earning strategy is mainly used by seasoned investors and involves an in-depth market analysis.
The double-sided position strategy is similar to the previous products; the only difference is that, in this case, the investor opens both the Buy Low and Sell High orders at the same time.
In this method, you will hold two tokens at the same value, one in crypto, say BNB, and the other in stablecoin (USDT). Let’s assume the current price of BNB is $280.
The first step is to use the BNB in the Sell High BNB Dual Investment product with a target price of $350 and a settlement date of two weeks.
Then you will use the stablecoin to buy into a Buy Low order and set your target price to $230 with a settlement date in the same period as the previous order.
Assuming the market is volatile within that time, one of three possible outcomes may occur.
The Target Price of both positions isn’t met as the price stays between $230 and $350. So, in this case, you’ll keep your original BNB and USDT deposits and earned APYs in both currencies.
In the second scenario, if the Sell High target price is reached, you may sell your BNB for $380 with interest gotten within that time. You’ll also profit from the interest your Buy Low order gets in USDC.
Lastly, if the target price for the Buy Low order is reached, you can buy your desired BNB at the target price coupled with the interest gotten during the settlement period and keep your Sell High BNB deposit plus earned interest. With this method, you buy BNB at a lower price while accumulating interest in BNB.
Dual Investments are certainly an avenue to earn passive income no matter how volatile the market may be. As a result, the product is ideal for long-term investors, the HODLers that want to hedge their position and make juicy profits.