Cryptocurrency Trading & Investment Flashcards

A trader holds a leveraged long position on a perpetual futures contract. The funding rate is consistently positive at 0.03% every 8 hours. After 72 hours with no price movement, what is the net effect on the trader's position?

Answer: The trader pays 0.27% of position size to short holders, reducing effective PnL

In perpetual futures, when the funding rate is positive, long position holders pay short holders. Over 72 hours with 8-hour intervals, there are 9 funding payments (72/8 = 9), totaling 9 × 0.03% = 0.27% of the notional position size paid out — even with zero price movement. This erodes PnL for the long holder.

An investor uses a 'delta-neutral' strategy by holding 1 BTC spot while simultaneously shorting 1 BTC worth of perpetual futures. If BTC price drops 20% and the basis (futures premium over spot) widens from 0.5% to 2.5%, what is the primary source of residual risk?

Answer: Basis risk from the divergence between spot and futures prices

A delta-neutral hedge (long spot + short futures) eliminates directional price risk. However, if the basis changes — here widening from 0.5% to 2.5% — the futures and spot prices move differently, creating a 2% unhedged exposure. This basis risk is the primary residual risk in cash-and-carry and delta-neutral strategies.

A DeFi arbitrageur executes a flash loan attack on an AMM. They borrow 10,000 ETH, manipulate the pool price, execute a trade on a lending protocol that uses the AMM as a price oracle, then repay the loan — all in one transaction. Which vulnerability is being exploited?

Answer: Reliance on a spot AMM price as a real-time oracle without TWAP smoothing

Flash loan oracle attacks exploit lending protocols that use instantaneous AMM spot prices as price oracles. Because the price can be manipulated within a single transaction (and reversed), using spot price without a Time-Weighted Average Price (TWAP) allows attackers to artificially inflate or deflate the oracle price to exploit undercollateralized borrowing or forced liquidations.

An investor wants to profit from implied volatility being overpriced relative to realized volatility on BTC options. Which strategy achieves this with the lowest directional (delta) exposure at inception?

Answer: Selling a delta-hedged ATM straddle (short call + short put, delta-hedged with spot)

When implied volatility exceeds expected realized volatility, the correct trade is to be short vega (sell volatility). Selling an ATM straddle is short vega and captures premium if IV collapses or realized vol stays low. Delta-hedging with spot removes directional exposure, leaving a near-pure volatility position. A long straddle would be long vega (wrong direction), and the covered call has significant directional delta exposure.

A Bitcoin miner is evaluating the profitability of mining after the next halving. Prior to the halving, the block subsidy is 3.125 BTC. Hash rate is 600 EH/s, and the miner controls 6 EH/s. Assuming difficulty adjusts perfectly and BTC price doubles post-halving, what happens to the miner's daily BTC revenue?

Answer: It halves, because the block subsidy drops to 1.5625 BTC regardless of price

Daily BTC revenue = (miner hash rate / network hash rate) × blocks per day × block subsidy. The miner's share is 6/600 = 1%. At ~144 blocks/day, before halving: 1% × 144 × 3.125 = 4.5 BTC/day. After halving: 1% × 144 × 1.5625 = 2.25 BTC/day — exactly half. The price doubling affects USD revenue, not BTC revenue. The question specifically asks about BTC revenue.

Under MiCA (Markets in Crypto-Assets Regulation) in the EU, which category of crypto-assets is subject to the STRICTEST reserve and redemption requirements, including mandatory 1:1 backing with low-risk liquid assets held in custody?

Answer: E-money tokens (EMTs) pegged to a single fiat currency

Under MiCA, E-money tokens (EMTs) — stablecoins pegged to a single fiat currency — face the strictest requirements: mandatory 1:1 backing with low-risk, highly liquid assets, segregated custody, and immediate redemption at par on demand. Asset-referenced tokens (ARTs) face rigorous requirements too, but EMTs are explicitly aligned with existing e-money directive standards and carry the most stringent reserve mandates.