Cryptocurrencies are by nature volatile, unregulated and disruptive to the existing financial order. It’s these qualities, and the outsized gains in cryptocurrencies like bitcoin and ether that attracted tens of millions of newcomers over the last year.
The number of ways to make money from cryptos expands as new applications and uses are developed and rolled out.
Here are some of the more obvious ones:
- Arbitrage: this involves profiting from price differences in the same asset (such as bitcoin) on different markets. Essentially, buying where it’s cheaper and selling where it’s more expensive. Arbitrage trading through Ovex has historically yielded an average 2.2% return. Using your discretionary allowance of R1 million a year and foreign investment allowance of R10 million, this could theoretically net R242 000 per individual a year, or R484 000 for a married couple.
- Trading cryptos: given their notorious volatility, cryptos are a favourite for traders seeking to profit from price swings as big as 10% or even 20% a day. However, making consistent profits from trading is easier said than done. Those who took a long bias over the last year would have done exceptionally well, but that strategy cannot last forever.
- Buy and hold: this is less risky than trading, but not without risks of its own. Had you bought bitcoin a year ago and held it, you would have made 400% on your initial investment. As astounding as that may seem, it pales alongside the more than 1 000% gain in ether and the 1 600% gains in smaller coins like Cardano.
- Interest accounts: it is now possible to earn annual interest of between 4% and 10% on different cryptocurrencies. This is a way for crypto holders to increase their crypto holdings without making any new investments. Ovex crypto exchanges offer this as a service to clients, either by “staking” (putting your crypto to work in the blockchain) or by on-lending to others. This is not without risk, as you may be required to lock up your crypto for a certain period, though it is more usual that you can unlock them at any time. You are also reliant on the integrity of the network you are using, and price moves in the crypto will affect the interest earned. Luckily Ovex offers a stable coin interest account which is matched to the dollar so there is less volatility.
There are other ways to make money from cryptos, such as through mining (solving complex mathematical problems and being rewarded in cryptos) and yield farming (hunting for higher interest yields available in the decentralised finance space) but these are not recommended for the ordinary crypto investor given the capital and potential risks involved.
The above five strategies range from relatively low risk to very high risk (trading).
Ovex was founded in 2017 to bring crypto arbitrage to a far wider market than was hitherto accessible. Crypto arbitrage had been known among crypto aficionados for several years, but it was technically challenging to pull off, and there were risks of sudden price changes wiping out arbitrage profits while the bitcoin was en route to SA. Most arbitrage trading involved buying bitcoin cheaply on overseas markets and then immediately shipping it to SA to sell at a premium – which ranged from 4% to as high as 30% at times.
As more people have entered the market, the arbitrage premium has declined to 2-5%, which is still an attractive return for most South Africans.
Ovex simplified the process by choosing a stablecoin called TrueUSD (which is backed 1:1 by the US dollar) rather than bitcoin.
Arbitrage opportunities are available in most countries with exchange controls, though the arbitrage gap varies depending on demand. A stablecoin, though backed by a regulated currency like the US dollar or rand, is a crypto asset that is often used by investors to park profits made on other cryptos in a safe asset that does not move in tandem with the rest of the market.
Explains Ovex CEO Jon Ovadia: “The arbitrage premium between TrueUSD (TUSD) and bitcoin is similar, but we are able to better manage the risks using TUSD rather than bitcoin. We can lock in an arbitrage profit before we ship a client’s funds offshore to purchase TUSD because we have sufficient depth to balance sheet to extend them credit for the duration that they are holding the stablecoins. Under normal arbitrage, the client would be at risk of sudden price changes wiping out his arbitrage profit. We take away that risk.”
Ovadia adds that Ovex has paid out more than R40 million in arbitrage profits to clients since 2017.
Ovex’s OTC desk
The larger part of Ovex’s business is an Over-The-Counter (OTC) desk that allows large buyers of crypto assets to get rapid settlement without the risk of moving the market.
This is important for companies or family offices that may be looking to diversify into crypto assets like bitcoin. A large purchase of say R20 million or R50 million would get noticed on regular exchanges and drive prices up. Ovex is able to eliminate this problem by settling large crypto orders in a way that does not move the market. It does this because it has deep financial backing and sophisticated computer systems.
Brought to you by Ovex.
Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.