Here’s a challenge for you: start talking about Bitcoin with a random person you meet. Pick a stranger sitting next to you on the bus or someone waiting behind you at the grocery store.
“Hey, random question but what do you think about Bitcoin? A friend of mine says it’s going to be the next global currency.”
See how long it takes for them to say the following sentence:
“Bitcoin is too volatile to be used as a currency.”
I did it seven times last week. For six of those conversations, it took less than a minute for a random stranger to bring up the volatility argument.
Which makes sense. If they are buying a $200 TV, they would rather pay in cash, not Bitcoin. If Bitcoin skyrockets tomorrow, they just overpaid and feel ripped off. If Bitcoin drops tomorrow, then whoever they bought the TV from feels ripped off. It’s a lose-lose.
The seventh person had a different answer:
“Bitcoin is too volatile to be used as a currency, but it’s the best asset in the world to trade. The more volatility, the better I usually do.”
That sixth person was a trader named Jeff.
Traders love volatile, inefficient crypto markets
As two crypto-enthusiasts, Jeff and I kept chatting. For the past five years, he had been working on the trading floor at a large bank, trading stocks before shifting to the foreign currency desk. He first heard about Bitcoin in 2017 and watched it explode from $3,000 up to $19,000 before crashing back down to $6,000. He was hooked instantly.
Traders make money by buying and selling assets at different prices. Volatility is a measure of how quickly the price of an asset changes, and the faster the prices change, the faster traders can make money.
Jeff started spending more and more of his time learning about Bitcoin and the entire cryptocurrency market. As a trader, the extreme volatility of crypto was a large selling point since it meant he could make money faster.
Low liquidity and untrustworthy data make crypto trading difficult
However, there were a few major drawbacks. There was very little data available to use in valuation models, and the data that existed was easy to manipulate. Even today, it’s estimated that 86% of cryptocurrency trading volume is fake.
In addition to the lack of reliable data, most assets had low liquidity, so Jeff wouldn’t be able to place large trades without dramatically shifting the price himself since the market was so small.
With that in mind, he decided to stick to a few simple trading strategies that didn’t require reliable data or liquid markets. By arbitrage trading between different crypto exchanges, Jeff had done pretty well for himself.
Trading sports markets is very profitable
Traders like Jeff love crypto because of volatility, but the lack of data and the small size of the market limits the profit he can make.
So, I started telling Jeff about the sports betting market.
First, the amount of data available on sports is massive. Thanks to the rise of sports analytics, every single step, shot, or serve is tracked so that teams can draft smarter, strategize better, and jack 3-point shots like never before (see: Warriors, Golden State or Rockets, Houston).
Second, the market is large enough that no singular trade has a large effect on game odds (in the sports betting market, game odds = prices). So sports traders can trade heavily without worrying about dramatic shifts.
Finally, sports betting is extremely volatile. Odds change dramatically from when they are first posted, to the start of the game. Then there’s in-game betting where the odds change after every play.
Both crypto and sports betting are inefficient markets
Traders like Jeff love inefficient markets. Inefficient markets mean more volatility and more opportunities to make money.
For crypto, the lack of data and market manipulation means that arbitrage strategies are the only reliable trading strategies at the moment. Hodling is a long-term investment strategy for the coins you believe will succeed.
For sports betting, detailed data combined with extreme volatility are a trader’s dream. By building models and shopping for the best odds, traders can deploy both arbitrage and value strategies and consistently make money in the long run.
Ready to learn how to profitably trade sports? Click on the article below.