On this article, we are going to analyze a peculiarity of the cryptocurrency market, particularly the correlation that exists between the value pattern of Bitcoin (BTC) and that of Ethereum (ETH), the principle altcoin available in the market. We’ll attempt to leverage this statistic to create a scientific buying and selling technique, engaged on the Ethereum-Bitcoin (ETH-BTC) pair.
The attribute that one desires to research is linked to an alleged recurring conduct (in any other case often known as Bias) that will present itself in the course of the course of the week: one desires to confirm whether it is true that it’s handy to carry Bitcoin (BTC) from the start of the week till the weekend, and convert it into Altcoin (due to this fact into Ethereum on this instance) in the course of the weekend, when certainly Bitcoin appears to take a break in favor of the Altcoin which as a substitute admire.
The idea of bias, that means a recurring conduct of costs over time, is among the easiest triggers on which it’s doable to construct a buying and selling technique. It’s a market inefficiency that reoccurs with a sure regularity, for instance, in particular time slots or days of the week. When it extends to longer intervals, it’s often known as seasonality.
Correlation between Bitcoin and Ethereum: worth evaluation over time
To confirm if this recurring conduct between Bitcoin (BTC) and Ethereum (ETH) really exists, the Bias Finder will probably be used within the preliminary part, a device developed internally on the Unger Academy to simplify the seek for biases on futures. The Bias Finder, in truth, based mostly on the historic information of a sure instrument, can shortly analyze traits on candles with a variable length between 5 and 60 minutes. As soon as the instrument and the timeframe are chosen, it’s then doable to guage totally different time horizons: day by day (Intraday), weekly (Weekly), month-to-month (Month-to-month), or annual (Yearly). For every of those, a chart is generated that reveals the pattern of the chosen instrument, expressed as the typical financial tour over time in absolute phrases or as a share.
In our case, by deciding on the Ethereum-Bitcoin (ETH-BTC) pair, with a 15-minute timeframe and a knowledge historical past from 01/01/2018 to 31/12/2024 (information supply: Binance), one can shortly assess whether or not the conduct that was assumed in the course of the week is current or not, by analyzing the pattern of the typical financial tour of the instrument.
From the weekly chart proven in Determine 1, the place every line represents a 12 months (from 2018 to 2024) and the darkish blue line represents the typical for all the interval, we are able to see that statistically, excluding 2021 (plotted in inexperienced), the Ethereum-Bitcoin pair reveals a sure tendency to say no (the value of Bitcoin will increase in comparison with that of Ethereum) from the start of the week till about Thursday, then barely rises in the course of the weekend.
The bias, due to this fact, though not very pronounced, nonetheless appears to be current, so one might hypothesize a scientific buying and selling technique to guage its profitability.
Logic of the Bias buying and selling technique on the Ethereum-Bitcoin (ETH-BTC) pair
Initially, utilizing a 60min chart of Ethereum-Bitcoin, and referring to the UTC time zone, one would possibly hypothesize promoting (i.e., shopping for Bitcoin) on Monday at midnight (evening between Sunday and Monday), and shopping for Ethereum (ETH) on Friday additionally at midnight. Any open place, due to this fact, could be closed by opening the place in the other way, with none cease loss or take revenue order.
For simplicity in studying the outcomes, operations will probably be performed with 100 Bitcoin (BTC) for every commerce, thus permitting a direct analysis of the outcomes as a share of the capital employed, which is exactly 100 Bitcoin (BTC). Figures 2 and three present the metrics of this quite simple technique, with none kind of filter utilized to the operations.
It’s quick to note how the rising fairness confirms the presence of the bias recognized with the Bias Finder, though the pattern is quite unstable within the historic vary thought of.
Evaluating the typical commerce, a worth of 0.38 Bitcoin (BTC) is discovered, which is 0.38% of the capital employed (100 Bitcoin), which might additionally represent a worth satisfactory to cowl operational prices, contemplating that it’s a tough technique, however it could actually actually be improved.
Optimization of the technique on Ethereum-Bitcoin: methods to enhance efficiency
One might first optimize the market entry timing by various the times and entry time: for the lengthy entry day between Wednesday and Saturday, and for the quick entry day between Sunday and Tuesday. Determine 4 reveals the results of the optimization carried out with MultiCharts, the place the times of the week vary from 0 (Sunday) to six (Saturday). It’s famous that the lengthy entry (buy of Ethereum) on Wednesday at 16:00 is more practical in comparison with Friday, as beforehand hypothesized. The quick entry can as a substitute be left on Monday at midnight, since advancing or delaying it by an hour doesn’t considerably change the consequence.
The subsequent step may very well be to guage the usage of cease loss and take revenue to higher handle open positions. By optimizing the cease loss between 0 and 5 Bitcoin (equal to 0% – 5% of the open place), in steps of 0.1, and the take revenue between 0 and 10 Bitcoin in steps of 0.25, you get the mixtures in Determine 5, amongst which you may go for the one with Cease 1.9 Bitcoin and take revenue 7.5 Bitcoin, which results in a superb Web Revenue to Max Drawdown ratio and a median commerce that rises to 0.55%.
As illustrated in Determine 6, the fairness line has undoubtedly improved, as have all of the metrics of the technique noticed beforehand.
Nevertheless, by analyzing lengthy trades and quick trades individually, it may be seen that the lengthy facet is the much less efficient one, so one would possibly think about filtering lengthy entries utilizing worth patterns, to function solely when circumstances are extra favorable for the event of the bias that one is attempting to journey. Nothing would stop doing the identical on the quick facet, offered that one doesn’t filter an excessive amount of and threat falling into overfitting the technique.
Conclusions and insights for growing a buying and selling technique based mostly on the Bitcoin-Ethereum correlation
The bias recognized between Ethereum and Bitcoin represents an attention-grabbing instance of market inefficiency that may be exploited with a scientific method. Regardless of the simplicity of the preliminary method, the outcomes spotlight vital potential, particularly after optimizing the entry and exit guidelines of the trades.
This examine goals to be a place to begin for additional exploring the subject and refining the technique to additional enhance its efficiency. The alternatives for refinement are quite a few, and the curiosity and initiative of the reader are left with the duty of exploring them to create more and more efficient methods.
Till subsequent time and joyful buying and selling!
Andrea Unger