The cryptocurrency markets are often volatile and suffer from periods of limited liquidity. Combined, they increase the risk profile for Blockchain asset investors.But with increased risk, the potential for reward should increase as well. In this post we explore one method professional traders use to handle volatility and liquidity issues and explore ways to profit from these inefficiencies. 

  The figure below shows an example of a profitable trading day using a mean-reversion strategy. At the beginning of the day, both buy and sell orders are placed in the market. The day develops and volatility drives a random walk of the price.Throughout the day, the strategy buys one Bitcoin at $4377.70. At some point later during the day, you sell this Bitcoin at $4421.48 and generate a profit of 1%. From this profit, fees have to be added or deducted. Some exchanges charge as little as 2.5 basis points for providing liquidity using such passive strategies. 

 Since the strategy is independent of the market level, it can add an independent performance to a buy-and-hold strategy. As an example, the strategy could use 1% of the portfolio assets and then aim to earn an additional 1% per day on this part of the portfolio. Historically, this strategy would have added 24% per year to the portfolio performance.