I like trading strategies that look at more than just the numbers. I try to find ones that consider factors over looked by most finance traders.
One of the strategies I’ve recently been playing around with is trading ‘delistings’.
From time to time, exchanges like Bittrex and Kraken, have to suspend trading on, or delist certain currencies. This usually happens because:
- The project is dead.
- The project has low and declining trade volume.
- The token over incentivizes holding of the coin.
- There are compliance issues with the coin.
- High demand on servers results in delisting low volume assets to better support BTC, ETH and Fiat pairs.
Obviously reason #1 is a major issue, but #2, #3, and #5 present us with opportunity.
I first noticed this when Bittrex had announced their intent to delist “BitShares” back in October.
BitShares had recently had a strong price rally, as its founder Dan Larimer, had recently received a great deal of positive press thanks to his new primary project EOS. This lead BitShares to a daily trade volume of around $120M USD, and a market cap of just north of $400M USD.
However, when that new press had tapered off in September, it resulted in a major stagnation of the volume. You had new buyers who were in well below their purchase price, you had hardcore fans who had been holding it for a long time, and you had no real new updates about the BitShares project itself, simply the EOS hype. This lead lots of people into a holding pattern.
As this was also the time that Bitcoin started into its strong rally, and we started to hear reports of the upcoming Bitcoin futures, a lot of major exchanges were inundated with new accounts hungry to trade Bitcoin and Ethereum. Low volume coins started to be delisted.
When Bittrex announced that they were delisting BitShares the price plummeted tumbling as low as 0.0000086 BTC – this didn’t just effect the price on Bittrex either, as Bittrex was the main source of volume for BitShares the price tumbled on other markets as well.
If we look at the price and volume on Poloniex (pictured left), we can see that the price was driven down right up until the date of the delisting and then there was a massive buy-back rally on other exchanges.
What this suggests is that:
- There were a large number of “coin agnostic” investors trading the BTC/BTS pair on Bittrex who didn’t care what the coin was just that there was volatility.
- The delisting created a panic sell among individuals who were less involved or less informed about the coin as they worried about the future of the project and thought BitShares might be in jeopardy.
- Panic selling likely lead to more panic selling and poorly executed stop loss strategies.
- Plenty of people still had faith in the project and resumed buing once the delisting turmoil period was over.
Understanding that BitShares is a well built project, with strong commercial and enterprise applications, and a new and unique technology stack, by a founder who is still involved in the space – it was clear to many that BitShares wasn’t going anywhere.
Therefore what the delisting represented was a great buying opportunity to anyone who wasn’t simply trading the numbers and instead had knowledge about the project.
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How much could you have made on the BTS Delisting?
Let’s assume you missed the absolute peak and absolute valley, we’ll take the 75th percentile of each side.
You could have bought BTS for as low as $0.065, and sold for as high as $0.145 – for a 223% (roughly 2.2x) return on your investment. In other words, for every $1000 you put in, you’d get $2230 back.
Now, this certainly isn’t the biggest gain you’ll ever see in the world of cryptocurrency, but it isn’t too shabby especially given that exchanges like Bittrex are delisting 1-3 coins each month.
Perhaps you don’t end up picking a winner like BTS that recovers so drastically, maybe you only get a 10%-20% swing, even then at the 15% average monthly because of compound interest you’d be seeing a 5.35x return on your money every year.
Considering that the target annual return rate for your 401K is 7%~ per year, there is clearly money to be made here. The risk all comes down to picking which assets are being delisted for which reasons.
How do I find these delisting opportunities?
Part of my morning routine has become to load up Bittrex and sort the BTC and ETH markets by biggest losses:
Normally I find that when Bittrex announces a delisting the price drops from -15% – -30%, but sometimes it can be less than that.
I’ll open the first 5-6 coins under the top losses and see if any have a delisting announcement at the top. It would look something like this:
If I see that I start researching the coin. There are a few key things I look for:
- Does the coin have an active community. Usually either on Reddit or Steem – this is a great way to gauge if there will be a group of people continuing to keep the coin alive after it gets delisted, but, also a great place to look for developer updates.
- Are the developers still active on the coins GitHub. This is a key sign to understanding if there is still future potential/development.
- Are the developers active on Twitter or a Blog? Have they commented on the delisting? Most projects that continue on after a delisting like this are active and take it head on. Usually the developers have been in touch with Bittrex and know why the delisting is taking place. These insights help to judge if it is worth the risk.
- Are there other exchanges that currently list the coin. Do they have good volume there? This is so I can figure out if there is going to be an easy way to sell the coin after it recovers from the delisting. I probably look for some place that either has >$1M volume or is capable of that volume (example: Poloniex).
- Has the coin been delisted elsewhere? This would be a red flag.
- Does the project have underlying value? This is a bit more subjective of a metric but an important one. If it is just another forked SHA256 or Scrypt clone with no real merit then its volume is mostly trade anyway. I ask myself if the project has unique values, ease of product use, unique features or is currently being used for some form of actual value exchange.
My buying process:
Once I find a target I want to buy, I proceed to the buying process. Since I don’t know where it will bottom out I want to “catch the falling knife” which means buying some even before it hits bottom because I know its on a discount.
Normally, I set my self a buying limit and I split my funds into three groups:
- Portion A – About 20% of my buying limit.
- Portion B – About 35% of my buying limit.
- Portion C – About 45% of my buying limit.
Then I’ll look at the marketbook. Here’s an example for an upcoming delisting that I was looking at:
In a case like this I would:
- Use Portion A to bid at around 0.00008822 in the upper portion of the book – if the upper portion of the book (first 2-3 orders) were larger, I would bid right at the top of the book if there is a good spread.
- Use Portion B to bid at 0.00008806 to be just ahead of the first major wall where someone is buying 48,000 tokens.
- Use Portion C to bid 15% below Portion B in this case 0.00007486.
I rarely expect all my positions to fill as these prices are already post crash, for example this token was previously trading at ~0.00014000, meaning that Portion C is roughly 50% off the previous price. But, even Portion A is 37% off of the previous price.
Portion A allows me to quickly enter the position and not miss out on the action, while Portion B and C are designed to help me ‘average down’ my pricing.
My Sell Strategy:
Then we have my sell strategy. I take all my tokens and figure out the average price I got them for. In the example above let’s say it was 0.00008809. From there I’ll divide them into 4 parts:
- Sale Portion 1 – 50% of the total.
- Sale Portion 2 – 20% of the total.
- Sale Portion 3 – 20% of the total.
- Sale Portion 4 – 10% of the total.
Then I set criteria for their sale:
- Sell Sale Portion 1 when the price is 10% greater than my purchase average.
- Sell Sale Portion 2 when the price is 22% greater than my purchase average.
- Sell Sale Portion 3 when the price is 50% greater than my purchase average.
- Hold Portion 4 for 6 months, or >3x whichever comes first.
This allows me to quickly regain Bitcoin for my main positions but still aim to benefit from possible higher end upsides.
For example, if you bought $1 worth of a token at $0.01 you would, you would have 100 tokens and then would sell them as follows:
- Sell 50 tokens for $0.55
- Sell 20 tokens for $0.24
- Sell 20 tokens for $0.26
At this point you’ve sold your tokens for a total of $1.05 – meaning you made a 5% profit and still have 10 tokens remaining. You can hold these tokens long term, or set a sale point that is a multiple of their current value (such as 3x), but all the risk has been removed as you’ve made back your principal amount as well as a small profit.
Sometimes I’ll play around with these numbers, for example, if I am really confident in the recovery of the coin I may push the bulk of my holdings into Sale Portion 3 or 4. The flip side is if I have no confidence in the coin I’ll be more conservative in how quickly I attempt to recoup my investment principal.
This strategy is fairly high risk, I’ve only done it four times and honestly one of them was a total disaster that I now have to count as a costly learning experience. But, none the less it’s an interesting opportunity that you can find if you look past the technicals.
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Disclaimer/Disclosure: Nothing in this post should be construde as financial or trading advice. TokenBeat and the author are not responsible for losses incurred. Cryptocurrencies and their trading may be subject to various laws in your jurisdiction. You should consult with a lawyer and tax professional in your jurisdiction before engaging in cryptocurrency trade. Cryptocurrencies are highly volatile, never invest more than you can afford to lose. In regards to our fair disclosure policy, note that the author of this article currently holds no positions in any of the aforementioned tokens or coins and voluntarily agrees not to exercise any related positions in any of the tokens or coins mentioned in this article in the next 72 hours.