During a period of increased market turbulence, when spot trading becomes too risky and traditional deposits do not bring income, investors are considering more complex instruments.
Dual currency investments refer to structured products that include more than one asset and have a fixed duration. Different ways of forming the profitability of selected assets allow you to diversify investments and reduce investment risks. A fixed capital return guarantee is also a distinctive feature of some types of bi-currency investments.
Structural instruments have become widespread in the global currency and stock markets, and now in the cryptocurrency one. Exchanges offer various dual-currency products with certain conditions: cryptocurrency pairs, income generation method, validity period and other points are prescribed in advance. Basically, such a product consists of two currencies, one of which is a risky asset, and the other is a stable one.
The investor’s investments are blocked for a certain period and at a certain percentage, and upon expiration of the blocking period, the platform returns the funds in the currency specified by the agreement. Typically, the interest rate of such a product is higher than that of a standard deposit offered on the same platform.
How Dual Currency Products Work?
Let’s take the BTC/USDT pair as an example. Let’s say an investor expects the price of bitcoin to rise to $30,000 during the blocking period. He places a deposit of 1 BTC on the exchange for a period of 7 days with a strike price of $30 thousand at 5% (for the period of placement, not annual).
If the rate has risen above the strike price, then the deposit owner receives the amount in USDT based on the execution price of $30,000 plus 5% ($1,500). Total $31.5 thousand.
If the rate is below $30,000, then the investor gets back his 1 BTC, plus 5% in the same cryptocurrency (0.05 BTC). Total 1.05 BTC.
Thus, income will be received in any case. In most of the proposed options for dual-currency deposits, the established yield is higher, the longer the period of placement of funds.
Conversion terms may vary. It can be carried out if the exchange rate during the blocking of funds exceeded the execution price set by the contract and fixed above this level. Under other conditions, the conversion can be carried out if the rate at least once exceeded the strike price, but then returned back.
Benefits of Dual Currency Investments
- High percentage of profitability. The potential profit that can be obtained from a dual-currency deposit is higher than with other passive investments in digital assets;
- A large number of available cryptocurrency pairs. Currently, exchanges offer a wide range of assets;
- No trading fees: the investor does not need to pay commissions as with spot market operations;
- Profit fixation. The ability to sell cryptocurrency at a target price and receive a pre-determined return on investment;
- A short deposit term makes such investments safer than others;
- Platforms offer products with different risk load: options differ in currencies, strike price, blocking periods and profitability.
Disadvantages of Dual Currency Products
- The assets are blocked for the agreed period and the investor cannot return the funds until the settlement date. This explains the high profitability of the product for long periods of placement;
- In case of unfavorable market movements, the value of the settlement currency may turn out to be less than the value of the deposited currency;
- If the price is far from the target, then you will not be able to buy or sell assets at a bargain price;
- Often, a trade is only executed based on the price on the settlement date;
- The higher the volatility, the more difficult it is to predict the rate at the end of the deposit term and correlate it with the strike price.
Like any investment, the use of dual-currency deposits is fraught with risks. You should always carefully study the information about the product and do your own research to predict the price movement.
When to Use Dual Currency Investments?
- Growing Market
In a bull market, the likelihood that the settlement price will exceed the control is quite high. In this scenario, when an investor using a pair of USDT / BTC deposits bitcoins on a deposit, then when the funds are returned, he expects to make a profit when converting coins to USDT based on the exercise price (reference price), as well as interest.
- Falling market
In a bear market, the price of a coin is in a downtrend. Whether a trader deposits BTC or USDT, returns will most often accrue in crypto assets other than stablecoins. This allows you to get more coins (at the expense of interest), even if the price falls.
- Instead of a conditional order
Bi-currency investments are sometimes used in place of a conditional order to profit from a coin or set a target price to buy it.
During a downtrend, the settlement price falls below the strike price. Thus, bi-currency products allow you to get more coins than when setting the purchase price in the spot market through a conditional order.
