How the Honey Badger works

Harrison Kinsley

Goals of the fund

  • Act as a hedge for Bitcoin investors/traders.
  • Buy into lows and sell into highs, shaving a margin along the way. This isn't to be confused with sell at the high and buy at the low. We make no attempt to predict highs and lows.
  • Act as a lower-risk alternative to buying and holding Bitcoin.
  • Increase the amount of Bitcoin in the client's account.
  • Simplicity, Security and Transparency.

Why use this strategy?:

This strategy is not for everyone looking to invest in bitcoin or profit in bitcoin.

Investors should be confident in the long-term efficacy and value of bitcoin, but are looking for a way to decrease risk in their investment in bitcoin. With decreased risk, there is also decreased reward, should bitcoin raise significantly.

How we achieve these goals:

Sea of BTC works by connecting to your account via exchange APIs.

Via exchange APIs, withdrawing and transferring is not allowed, or can be set to be not allowed, therefor you retain full control of your account. You are also able to stop the service at any time by disabling the API access. Also, many exchanges offer the ability to "whitelist" specific IPs, so that only those IP addresses can connect and trade via your API key.

Once you have supplied the required API key and API secret, we are able to run our trade bot on your account. You can view your account's information and current trades at any time by logging into your exchange account.

We use a modified grid-trading system. A nice, short, definition of this is:

"A series of positions and open orders that are built with a predetermined spread defined by the trader."

A grid trading strategy has a few implications:

  • There is no stop-loss. Instead, risk is hedged via only small portions of the account being traded at a time. Typically, ~5% or so of your account's value is traded at a time.
  • If price drops, it is with mathematical certainty that your account value will drop less in % than the market.
  • If price rises consistently for a long period of time, you will likely under-perform in that time-frame until price retraces, though you will still profit.
  • Patience is key. It can be unsettling to watch as price rises and outperforms your account. The reason for the out-performance is you will have sold at varying intervals, and you are not usually fully invested, meaning you might have half of your account in dollars instead of Bitcoin, for example. While it might be uncomfortable, this is part of the strategy, risk management, and the point of investing. No one can predict the markets, and the old adage about selling into highs and buying into lows applies.

Warnings / Suggestions:

You will not get rich quick with this strategy. It is nearly impossible to make any significant life-changing gains here.

While you are hedging against bitcoin prices, there is certainly added risk by putting your money into exchanges. You must weigh this risk with some serious thought. Exchanges have disappeared in the past, and there will most likely be more in the future.

Given the nature of this strategy and risks, you should not invest 100% of your bitcoin holdings into anything, including this strategy and any exchange. If you're a long term believer in the idea that bitcoin price will rise significantly, the majority of your holdings should be in cold storage in a very secure place.

How to create an API key:

This will differ from exchange to exchange. Generally, you go into your account and find the API section. From there, you can enable an API, and choose the options for the API. Make sure trading and information are enabled as well. Most of the time, simply creating an API key doesn't allow for trading or getting info.

This would be a good time to also make sure that, if withdrawals are possible via the API, that you disable withdrawals. Also, see if there are any "whitelist" options. If there are, then you can just add Sea of BTC's IP to the list (ask me for it).

Supported Exchanges:

  • BTC-e
  • Bitfinex
  • Others can possibly be supported, depending on their ToS.
    • Any other questions about how it works? Did I leave something out? Feel free to email me: Harrison@seaofbtc.com