cryptocurrencies - QuantPedia

An Investor’s Guide to Cryptocurrencies

February 17, 2023

Cryptocurrencies are an asset class that isn’t easy to ignore in the modern world. In February 2023, the crypto market capitalization was at around $1.1 trillion, which is roughly half of the value of all U.S. notes and coins in circulation. With their properties quite different from other investment options, it might prove useful to an investor to understand and navigate this market well. The authors Campbell R. Harvey, Tarek Abou Zeid, Teun Draaisma, Martin Luk, Henry Neville, Andre Rzym, and Otto Van Hemert in their paper An Investor’s Guide to Crypto (July, 2022), offer an overview surely interesting for anyone willing to enter this market.

Investigating Price Reaction Around Bitcoin & Ethereum Events

February 15, 2023

Cryptocurrencies are a high-risk and very speculative asset class that, from being used only by tech geeks worldwide, spread from small retail craziness of early adopters to institutional adoption and mainstream. Some claim it to be a world-changing concept with the utilization of blockchain (databases) and smart contracts that open a wide range of opportunities, from decentralizing finance to self-governing algorithms; some others point to unnecessary scams, money laundering, and bubbles. We have been covering the concepts and topics relating to crypto extensively. This article will continue our investigation of this interesting field. We would like to test how the price action looks around some of the events unique to the cryptocurrency world – namely the Bitcoin reward halvings and hard and soft forks in Bitcoin and Ethereum networks.

What Is an Optimal Allocation to Cryptocurrencies?

January 18, 2023

Cryptocurrencies are a very controversial asset class. Some people may hate it, others may glorify it, and a significant part may ignore it. But what’s the opportunity cost of complete ignorance? Are we able to numerically calculate it? That’s a hard question that Duchin, Solomon, Tu, and Wang tried to answer in their recent paper, and we will take a look at some of their findings and discuss it.

How Much Are Bitcoin Returns Driven by News?

November 30, 2022

The main theme of these days in the crypto world is unmistakenly clear, it’s the mayhem connected with the collapse of the FTX empire, insolvencies of various lenders, and questions about underlying holdings in GBTC OTC ETF and reserves of exchanges and Tether (or other stablecoins as well). With new information, nothing does paint a bright picture of this industry in the financial world now and in the near future. Calls for finally working regulations are getting stronger and stronger, while politicians (and central bankers) are still active on Central Bank Digital Currencies (CBDCs) proposals. While Bitcoin survived several crypto winters, long-term investors are continuing their DCA-ing and “stashing Satoshis” Are they safe? Do they pay attention to the surrounding news? In our blog entry, we will focus on the question of how news impact Bitcoin returns, being both the most famous cryptocurrency and also the one with the highest market capitalization.

Skewness/Lottery Trading Strategy in Cryptocurrencies

June 21, 2022

A recent spring 2022 crisis in the cryptocurrency market emphasized the importance of market-neutral crypto trading strategies. It’s not enough just to HODL crypto market and hope for the everlasting bull market. Therefore, we continue our series of research articles about the cryptocurrency market and offer an analysis of the skewness anomaly. So after our description of the skewness effect in commodities, an article about the multi-asset skewness strategy, and observation of the skewness/lottery effect in ETFs, we have one more asset class, where we can find lottery/skewness anomaly – in cryptocurrencies.

Trend-following and Mean-reversion in Bitcoin

March 15, 2022

Indisputably, trend-following and mean-reversion are two key concepts in quantitative investing or technical analysis. What about the Bitcoin? Are there trend-following or mean-reversion patterns? Or are both effects present and co-exist? In this short research, we examine how Bitcoin’s price is affected by its maximal or minimal price over the previous 10 to 50 days. Our finding shows that when the BTC is at the local maxima, it tends to continue trending upwards. Furthermore, the local minima are also connected with abnormal price action.

Are There Seasonal Intraday or Overnight Anomalies in Bitcoin?

February 18, 2022

At Quantpedia, we love seasonality effects, and our screener includes several strategies that exploit them. These anomalies are fascinating since they usually offer a favorable risk and reward ratio and are commonly invested only during short periods. Frequently, these strategies are valuable additions to portfolios because they are not that sensitive to overall market performance. This short article presents a brief examination of some possible Bitcoin seasonalities.

Cryptocurrency Stablecoins – A Review of Recent Research

February 15, 2022

Since January 2020, the annualized volatility of Bitcoin stands around 70%, 6-times the volatility of commodities like Gold or Oil, more than twice the volatility of the S&P 500, and 10 times the volatility of the EURUSD exchange rate. Stablecoins represent a specific category of cryptocurrencies aiming to keep their value stable against a benchmark asset, usually a fiat currency like the US dollar. So how do stablecoins work, and do they really offer needed stability?

Periodicity in Cryptocurrencies – Recurrent Patterns in Volatility and Volume

January 11, 2022

The high-frequency data in cryptocurrency markets is available at any time of the day, which facilitates the studies of periodicity measures beyond what’s possible in other markets. The research paper by Hansen, Kim, and Kimbrough (2021) investigates the periodicity in volatility and liquidity in two major cryptocurrencies, Bitcoin and Ether, using data from three exchanges, Binance, Coinbase Pro, and Uniswap V2. In particular, the authors measure relative volatility and relative volume across days, hours, and minutes. Their results have confirmed the presence of recurrent patterns in volatility and volume in studied cryptocurrencies for the periods day-of-the-week, hour-of-the-day, and within the hour.

NFTs: Important Preliminary Risk and Return Analysis

December 16, 2021

NFTs are taking the cryptocurrency trading world by storm. NFTs stand for the non-fungible tokens which have emerged as another possible usage of blockchain technology. NFT can be used to record/verify/track the ownership of a unique – hence the non-fungible asset. Commonly, NFTs are connected with art (visual art, music, etc.), but there are also several decentralized finance or gaming-related projects.
Same as for the other blockchain-related projects, the critics are easy to find, so a research paper with hard data concerning the NFTs can be of great importance. The research paper by Mazur (2021) studies the NFT startups traded in the crypto markets. Therefore, the paper does not analyze the individual NFTs (such as some piece of art), but rather the whole projects and their tokens traded on the Binance crypto exchange.