As a pre-packaged investment strategy, it is a principal-protected product with relatively low risk. Its name is derived from the shape of the payout diagram at maturity which resembles a shark's dorsal fin. Since it offers enhanced yield combined with robust risk management, it enables investors to successfully navigate market volatility and is especially useful for investors with lower risk tolerance.

In this article, we'll delve into the inner workings of Shark Fin — what it is, how it works, its benefits and risks. We'll also present a case study to further bolster your understanding of this innovative structured product. Let's dive deeper.

Shark Fin is one of the most widely known crypto structured products. But what are structured products and why is it so popular especially among cryptocurrency investors? Structured products are pre-packaged financial instruments that combine traditional investments, such as bonds, with derivatives. They are designed to facilitate specific risk-return objectives which are impossible to achieve with standalone investments. These tailored solutions offer enhanced returns or risk mitigation depending on the investor's needs.

In the realm of cryptocurrency, structured products like Shark Fin serve a similar purpose. They allow investors to gain exposure to the highly volatile crypto market while managing their risk levels. This is achieved by linking the return on investment to the performance of underlying cryptocurrencies.

One of the main advantages of using structured products like Shark Fin is the potential for enhanced returns. Because these products are linked to the performance of underlying cryptocurrencies, they can yield significant profits when these currencies perform well. In addition, they also provide a level of principal protection, ensuring that investors do not lose their entire investment if the market goes south.

On the flip side, structured products can also pose certain risks. For example, the return on these products is generally capped, meaning that investors may not fully benefit from a major surge in the value of the underlying cryptocurrency. Furthermore, these products are typically more complex than traditional investments, requiring a higher level of understanding to navigate effectively.

As you consider venturing into the world of Shark Fin and other structured products, it's crucial to weigh these pros and cons carefully. By gaining a deep understanding of these financial tools, you can make informed decisions that align with your investment goals and risk tolerance.

In the realm of cryptocurrencies, a 'bullish' market condition is characterized by rising prices and optimism, prompting investors to buy. In contrast, a 'bearish' market condition implies falling prices and pessimism, leading investors to sell. When applied to Shark Fin, these terms define the kind of structured strategy an investor might employ.

A Bullish Shark Fin strategy involves an investor making investments with the expectation that the price of the cryptocurrency will rise. On the other hand, a Bearish Shark Fin strategy is used when the investor anticipates a drop in the crypto's value. These strategies are not just simple speculations; rather, they're based on thorough market analysis, trends, and patterns.

With their ability to adapt to market conditions, Bullish and Bearish Shark Fin strategies allow investors to pivot their positions according to market sentiment. This adaptability can offer a significant edge over traditional investment approaches.

Investment Amount: 100,000 USDT

Underlying Asset: BTC/USDT

Duration: 7 Days

Lower Price: 30,000 USDT

Upper Price: 33,000 USDT

Participation rate: 70%

Guaranteed Coupon: 5%

There are two possible scenarios that could unfold. In scenario 1, the expiration price of BTC is above the Upper Price or below the Lower Price. In scenario 2, the expiration price of BTC falls between the Lower and Upper Price, meaning that Alice accurately expresses her view of the market and will receive additional returns. Let's take a look at how much Alice would earn in each scenario.

Bullish Shark Fin: Scenario 1

The formula for scenario 1 goes as follows:

Guaranteed Return = Investment Amount *Guaranteed Coupon * Duration / 365

USDT Amount = Investment Amount + Guaranteed Return

In scenario 1, the guaranteed return for Alice would be:

Guaranteed Return = 100,000 USDT * 5% * 7 / 365 = 95.89 USDT

Therefore, the total USDT amount Alice would receive in scenario 1 would be:

USDT Amount = 100,000 USDT + 95.89 USDT = 100,095.89 USDT

Bullish Shark Fin: Scenario 2

In scenario 2, the expiration price of BTC is 32,000 USDT. This means that Alice will receive additional returns based on the following formula: 

USDT Amount = Investment Amount + Guaranteed Return + Additional Return

Guaranteed Return = Investment Amount *Guaranteed Coupon * Duration / 365

Additional Return = Investment Amount * Additional Coupon * Duration/365

Additional Coupon = Participation Rate * (Expiration Price – Lower Price)/Lower Price

Working backwards:

Additional coupon = 0.70* (32,000 USDT - 30,000 USDT) / 30,000 USDT = 4.67%

Additional Return = 100,000 USDT * 0.0467 * 7/365=133.79 USDT

Guaranteed Return = 100,000 USDT *0.05 * 7 / 365 = 192.05 USDT

USDT Amount = 100,000 USDT + 192.05 USDT + 133.79 USDT = 100,325.84 USDT

The formula for scenario 1 goes as follows:

Guaranteed Return = Investment Amount *Guaranteed Coupon * Duration / 365

USDT Amount = Investment Amount + Guaranteed Return

Thus, Bob will receive:

Guaranteed Return = 100,000 USDT*5%*7/365 = 958.90 USDT

Total USDT Return = 100,000 USDT + 958.90 USDT = 100,985.90 USDT

Bearish Shark Fin: Scenario 2

In this scenario, the expiration price of BTC is 29,000 USDT. The formula for scenario 2 goes as follows:

Total USDT Return = Investment Amount + Guaranteed Return + Additional Return

Guaranteed Return = Investment Amount *Guaranteed Coupon * Duration / 365

Additional Return = Investment Amount * Additional Coupon * Duration/365

Additional Coupon = Participation Rate * (Higher Price – Expiration Price)/Higher Price

To find out how much returns Bob will receive, let's work backwards.

Additional Coupon = 70% * (30,000 USDT - 29,000 USDT) / 30,000 USDT = 0.0333 USDT

Additional Return = 100,000 USDT * 0.0333 * 7 / 365 = 576.38 USDT

Guranteed Return = 100,000*5%*7/365= 958.90 USDT

Total Returns= 100,000 USDT + 958.90 USDT + 576.38 USDT = 101,535.28 USDT

In essence, understanding and utilising Bullish and Bearish Shark Fin strategies can provide investors with a dynamic tool to navigate the volatile cryptocurrency market. This approach can not only help manage risk but also enhance potential returns, depending on the prevailing market conditions.

However, it's important to note that success in monetizing market views heavily relies on accurate predictions. Therefore, extensive market research, analysis, and understanding of both macro and microeconomic factors influencing the crypto market are crucial. Investors should also understand that while Shark Fin provides a mechanism to express and profit from their market views, it doesn't guarantee returns. Like any investment, it carries inherent risks.

While Shark Fin brings a host of potential benefits, it's also crucial to consider the associated risks. One of the main challenges is the requirement for a certain level of risk tolerance. Cryptocurrency markets are notably volatile, and while Shark Fin offers principal protection, the possibility of losing potential profits can still be unsettling for some investors. Thus, a certain level of comfort with risk is necessary when venturing into this kind of investment.

Moreover, the enhanced yield that Shark Fin offers comes with a caveat — it largely depends on market conditions. If the market doesn't perform as expected, the returns can be significantly less than what might have been possible with a direct investment in the underlying cryptocurrency. This uncertainty is inherent in any form of investing, but it's especially pronounced in the world of crypto due to its volatile nature.

In conclusion, the decision to invest in Shark Fin should be based on a thorough understanding of both the potential benefits and risks associated. It's essential to align this structured product with investment goals, risk tolerance, and overall strategy.

Shark Fin is no doubt a structured product that's making a splash in the world of cryptocurrency investing. Its increasing popularity is a testament to the unique blend of benefits it offers, especially to those who are keen on leveraging the volatile nature of cryptocurrencies. As a structured product, it provides an innovative approach to investing, combining elements of traditional finance with the dynamism of the crypto space.

The appeal of Shark Fin lies in its inherent advantages. It allows investors to express their market views effectively, whether bullish or bearish and to monetize these views through strategic investment decisions. Moreover, it offers potential benefits such as principal protection, enhanced yield, and portfolio diversification — all attractive features in a rapidly changing market.

However, like any investment tool, Shark Fin comes with its own set of risks. While it can provide principal protection, returns are capped to a certain limit, and users may miss out on potential profits from other trading strategies. Nevertheless, it provides a viable stepping stone for investors with a low risk appetite or those who wish to gain exposure to the cryptocurrency market while safeguarding their capital.

So, is Shark Fin right for your platform? The answer ultimately depends on your users’ circumstances. Shark Fin provides a great starting point for new investors on their initial foray into the crypto market. At the same time, it can be suitable for seasoned investors in times of volatile market conditions. 

Darwinbit offers a suite of crypto structured products designed for investors of all risk appetites. Shark Fin is one of our many solutions that can be tailored to the needs of your platform's users. To find out more about Shark Fin and our other services, feel free to get in touch with our team!