cryptocurrencies - QuantPedia

What Drives Crypto Asset Prices?

September 20, 2024

Cryptocurrencies are no longer just a whim of computer nerds, they are part of the mainstream finance and often accepted part of fixed allocation for an overall diversified portfolio. We will not try to predict, whether they are here to stay in the future or will be subject to failure. This is a topic that has been touched on infinitely. Our interest caught up a purely practical paper by Austin Adams, Markus Ibert, and Gordon Liao, in which the authors apply classic macro-finance principles to identify the impact of monetary policy and risk sentiment in conventional markets on crypto asset prices. So let’s explore their results …

Revisiting Trend-following and Mean-reversion Strategies in Bitcoin

September 12, 2024

Over the past few years, significant shifts in the financial landscape have reshaped the dynamics of global markets, including the cryptocurrency sector. Events such as the ongoing war in Ukraine, rising inflation rates, the soft landing scenario in the US economy, and the recent Bitcoin halving have all profoundly impacted market sentiment and price movements. Given these developments, we decided to revisit and reassess trading strategies, specifically Trend-following and Mean-reversion in Bitcoin published in 2022, which utilized data from November 2015 to February 2022. This new study explores how these strategies would have performed from November 2015 to August 2024, taking recent changes into account. The study also examines market changes between February 2022 and August 2024, highlighting developments since previous research. Additionally, it evaluates the influence of seasonality on Bitcoin’s price action, similar to our previous article – The Seasonality of Bitcoin. By analyzing these factors, we aim to provide deeper insights into the evolving behavior of the world’s leading cryptocurrency and guide investors through the complexities of today’s market environment.

The Art of Financial Illusion: How to Use Martingale Betting Systems to Fool People

June 25, 2024

The Internet (and especially the part related to finance, trading, and cryptocurrencies) can be dangerous and full of offers of guaranteed returns, pictures of forever-growing bank accounts, and guys with golden rings swimming in the bathtub filled with cash. The truth is usually less rosy. Lucrative frauds, so-called white color crimes, have always been there, but with new technologies, they can spread faster and hide under a colorful disguise. One of the oldest concepts, from the beginnings of conceptualizing probability and statistics branches of mathematics, is Martingale betting, and this method is very often exploited to lure inexperienced new traders, who are then eaten alive by marketing sharks, selling them seemingly non-losing signals. How? An interesting paper by Carlo Zarattini and Andrew Aziz sheds some some light on these schemes.

Can Google Trends Sentiment Be Useful as a Predictor for Cryptocurrency Returns?

April 17, 2024

In the fast-paced world of cryptocurrencies, understanding market sentiment can provide a crucial edge. As investors and traders seek to anticipate the volatile movements of Bitcoin, innovative approaches are continuously explored. One such method involves leveraging Google Trends data to gauge public interest and sentiment towards Bitcoin. This approach assumes that search volume on Google not only reflects current interest but can also serve as a predictive tool for future price movements. This blog post delves into the intricacies of using Google Trends as a sentiment predictor, exploring its potential to forecast Bitcoin prices and discussing the broader implications of sentiment analysis in the financial market.

Cryptocurrency Market Dynamics Around Bitcoin Futures Expiration Events

March 27, 2024

In the rapidly evolving landscape of cryptocurrency markets, understanding the underlying dynamics that drive price movements and investor sentiment can be a matter of survival. However, there are myriad facets of trading reality, and the only thing that we can do is to slowly understand them one after another, one step at a time. This article picks one corner of the cryptocurrency market and sheds a little light on it. We have already written a few times about the importance of the introduction of Bitcoin futures and their impact on the Bitcoin price. Therefore, in this article, we will specifically examine Bitcoin’s behavior around the critical events when Bitcoin futures expire.

Systematic Hedging of the Cryptocurrency Portfolio

March 13, 2024

Cryptocurrencies are already one of the major asset classes. They fill the top pages of magazines and are a topic of a day to day conversation. There are a lot of ways to buy them through a lot of different channels. But some of the hardcore HODLers like to keep their coin portfolio safe – they buy a portfolio of cryptocurrencies and hold them in cold storage. It has a lot of advantages (you will probably not become a victim of hacking if your crypto coins are in cold storage in your wall safe) but also some disadvantages (your cold storage device can become unreadable or destroyed). One of the disadvantages of cold storage is that while you hold the cryptocurrencies in your cold storage, you are exposed to the price swings of the cryptocurrency market (which can be tremendous). But do you need to have this risk, especially when the market is at an all-time high? What if you smartly hedged a portion of your portfolio? The goal of this article is to serve as an inspiration for a hedging strategy for your cold storage cryptocurrency portfolio. We do not say this is the only way to run a hedging strategy, but we would like to inspire you to start thinking about this possibility even when you have not considered it yet. Are you ready? Then let’s go 🙂

How Much Bitcoin Should We Allocate To the Portfolio?

February 26, 2024

After years of waiting, the recent launch of spot Bitcoin ETFs marked a significant milestone in the cryptocurrency market, making Bitcoin even more accessible for investors. Spot ETFs provide a convenient and regulated way to gain exposure to Bitcoin without the need to hold the digital asset directly, potentially attracting a broader range of market participants. Many investors are waiting to see this change’s long-term impact on the cryptocurrency’s price while putting their faith in the potentially significant returns from Bitcoin within their investment portfolios. These events are taking place after two significant milestones in Bitcoin’s history – the introduction of BTC futures in 2017 and the launch of the BTC futures ETF (BITO) in 2021. While examining the whole history of Bitcoin may give the impression of a new super asset, we need to set realistic expectations. What have all these historical changes brought, and what lessons can we learn from similar occurrences involving other assets throughout history?

Join the Race: Quantpedia Awards 2024 Await You

January 26, 2024

Two weeks ago, we promised you a surprise, and now it’s finally time to unveil what we have prepared for you :).

Our Quantpedia Awards 2024 aims to be the premier competition for all quantitative trading researchers. If you have an idea in your head about systematic/quantitative trading or investment strategy, and you would like to gain visibility on the professional scene, then submit your research paper, and you can compete for an attractive list of prizes. All info about the prizes, submission process, expert committee, and our partners are described in detail on our dedicated subpage: Quantpedia Awards 2024. But we will also give you a quick overview in this blog post.

Are Cryptocurrencies Exposed to Traditional Factor Risks?

January 23, 2024

Cryptocurrencies are attracting much attention, even becoming a priority for many high-net-worth investors. The introduction of the new spot Bitcoin ETFs simplifies access to this asset class, and as cryptos are included in more and more portfolios, industry practitioners look for models that can help assess how big a portion of clients’ portfolios allocate to this new asset class. Factor risk models are an industry standard for understanding other main asset classes, and authors of today’s presented research (Akbari, Ekponon, and Guo, revised 2024) provide useful insights into which factor risks can explain the variation in cryptos returns.

The main take-away? We can definitely shred the idea that crypto stands on its own, acting independently and in isolation from other financial world vehicles. Overall, these findings provide the evidence that well-known factor risks can explain crypto market returns and that a strong link exists between the crypto market and traditional asset classes.

The Seasonality of Bitcoin

September 13, 2023

Seasonality effects, one of the most fascinating phenomena in the world of finance, have captured the attention of investors and researchers worldwide. Since these anomalies are often driven by factors other than general market trends, they usually don’t correlate strongly with market movements, which can help reduce the portfolio’s overall risk. Following the theme of our previous article Are There Seasonal Intraday or Overnight Anomalies in Bitcoin?, we decided to extend the data and conduct a more in-depth analysis of our earlier findings. This article explores potential seasonal patterns related to Bitcoin, focusing on whether these patterns are influenced by factors such as current market trends or the level of volatility in the market.