After Alpha: How Can Traders Gain An Edge? Cyclical Systems Like This One Could Provide An Answer

Markets can be highly volatile, which is glaringly obvious in the world of cryptocurrency. 

The crypto market and the individual assets that comprise it are subject to extreme swings in value. While this can make things difficult, it also theoretically creates opportunities for smart traders who are able to properly strategize on the direction of the market.

But even when investments grow, are traders leaving value on the table?

Most do everything in their power to maximize gains, and this means outperforming a market, hot or cold. If the whole market grows by 10% in a year, the goal is for investors to outperform that. This gap is called alpha and is the difference between a benchmark of the market as a whole and an individual portfolio.

Many investors or fund managers are famous for the alpha they provide, but not all are exactly consistent - Cathie Wood became a superstar after her fund Ark Innovation ETF ARKK performed well above the broader market. As the markets turned, however, the fund was down significantly more than the market as a whole. 

Berkshire Hathaway Inc. (NYSE: BRK-A) CEO Warren Buffett is a great example of sustained alpha. He has outperformed the market, although perhaps more modestly, over his whole career.

As the crypto market makes wild swings, projects such as Seasonal Tokens may be interesting examples of other methodologies of gaining value. The project created its own internal market with which it hopes traders can continually achieve alpha.

Seasonal Tokens is made up of not one but four individual tokens — Summer SUMMER/USD, Autumn AUTUMN/USD, Winter WINTER/USD and Spring SPRING/USD.

These tokens are designed to rise and fall in value relative to each other based on the mechanics the project has put in place that influence the relative supply and demand of each.

The supply is cyclically influenced by adjustments to the mining difficulties and farming rewards. At any given time one of the four will be the easiest to produce and least rewarding, and therefore, the market is incentivized to value it the least. At the same time, another token will be the hardest to produce and most valuable to farm, and the market may value it the highest. 

After a time this will shift, reversing these factors. This theoretically presents an opportunity for traders to always be trading more valuable tokens into less, hopefully creating a system in which generating alpha is a consistently attainable endeavor.

If you are interested in learning more about the project, check out https://seasonaltokens.org/.

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Featured photo by Viktor Forgacs on Unsplash