The Bullish Market Dilemma: HODL or Liquidity Pools? | Tortle Ninja

The Profitability of Liquidity Provision for WBTC/ETH vs. BTC Holding

Tortle Ninja
3 min readOct 24, 2023

This article conducts an in-depth analysis of the comparative merits between Bitcoin and liquidity pool investments within the WBTC/ETH pair to determine which option offers better returns.

Bitcoin, the pioneer of cryptocurrencies, has long been a magnet for investors. Its potential for high returns and the thrill of navigating its inherent risks have made it a staple in the portfolios of crypto enthusiasts.

For many investors, the question looms large: Is it wiser to continue HODLing Bitcoin or take the plunge into a liquidity pool, particularly with pairs like WBTC/ETH?

Image from CoinMarketCap

Holding Bitcoin exposes you to the risks linked to wrapping tokens or the potential insolvency of the Bridge. When you invest in a pair, you add another layer of risk associated with that particular pair. Although both risks should be considered low, particularly because neither is currently being actively exploited, they are still worth taking into account.

During our research, Bitcoin underwent a substantial price increase, serving as the cornerstone of this recipe’s profitability, amounting to around 18%:

In the early stages and immediately following a BTC price surge, holding was the superior strategy. However, as the market evolved, the position of the Liquidity Provider (LP) began to improve for two primary reasons:

  1. Ethereum’s Price Increase: Ethereum’s movement, being close to BTC, reduces impermanent loss and increases the total value of the investment.
  2. LP Fees: The fees accumulated by the LP are approximately 0.2% and create a compound interest effect.

Our comprehensive data analysis reveals that, during bullish market characterized by surging volumes and escalating prices, a strategy centered on liquidity provision typically outperforms a passive asset holding approach.

This conclusion gains further validation from the strong correlation between WBTC and ETH, suggesting synchronized price movements and potential benefits for liquidity providers. Thus, in anticipation of a bullish market, it is advisable for investors to explore the merits of liquidity provision, especially in trading pairs like WBTC/ETH, even when Impermanent Loss (IL) is a factor.

Both Bitcoin and the WBTC/ETH liquidity pools offer distinct advantages. Bitcoin remains alluring for its potential to deliver robust returns, especially after significant price surges. As the cryptocurrency market matures, the practical benefits of engaging in liquidity provision become increasingly evident.

Ethereum, in particular, demonstrates a substantial correlation with Bitcoin’s price movements, amplifying the appeal of liquidity pools. Additionally, the accumulation of LP fees further underscores the growing attractiveness of these liquidity mechanisms.

The Final Takeaway

In the midst of a bullish market, strategically diversifying one’s crypto portfolio by participating in liquidity provision within the WBTC/ETH pair emerges as a prudent strategic choice.

Thank you for taking the time to read our blog post! We hope you found it informative. If you enjoyed what you read, please leave a comment below. Follow us on Twitter, LinkedIn, YouTube, and Discord.

Are you interested in leveling up your DeFi skills? Check out our website, Tortle Ninja.

About Tortle Ninja

Tortle Ninja offers users an advanced DeFi algo-trading experience, allowing them to execute spot and derivatives strategies with ease, measure their effectiveness using real-time data, and adapt swiftly to ever-changing market conditions.

--

--

Tortle Ninja

Design, execute, share, and clone DeFi strategies with a few clicks.