On this article, we’ll analyze a peculiarity of the cryptocurrency market, specifically the correlation that exists between the worth tendencies of Bitcoin (BTC) and the worth tendencies of Ethereum (ETH), the principle altcoin available in the market. We’ll make the most of this statistic to work on the Ethereum-Bitcoin (ETH-BTC) pair and attempt to create a scientific buying and selling technique.

The traits you wish to analyze are associated to repetitive behaviors (also called biases) that seem in the course of the week. We wish to see if it is true that holding Bitcoin (BTC) is beneficial. From the start of the week till the tip of the week, you exchange it to an altcoin (Ethereum on this instance), and on the finish of the week Bitcoin really goes dormant and as a substitute seems to favor the rising altcoins.

The idea of bias, which refers to repeated worth actions over time, is among the easiest triggers for constructing a buying and selling technique. This can be a market inefficiency that repeats with some regularity, comparable to at sure instances of the day or on sure days of the week. If it spans an extended time period, it’s normally known as seasonal.

Bitcoin and Ethereum correlation: long-term worth evaluation

A bias finder is utilized in a preliminary stage to confirm whether or not this repeated conduct between Bitcoin (BTC) and Ethereum (ETH) actually exists. Bias Finder is a software developed internally at Anger Academy to simplify the seek for bias towards futures. In reality, Bias Finder lets you shortly analyze candlestick tendencies primarily based on historic knowledge for a selected monetary instrument over a variable time interval of 5 to 60 minutes. By deciding on a monetary instrument and time-frame, you may consider totally different time intervals, comparable to every day (intraday), weekly (weekly), month-to-month (month-to-month), or yearly (yearly). For every of those, a chart is generated exhibiting the pattern of the chosen monetary instrument, expressed as the common forex fluctuation over time in absolute values ​​or percentages.

In our case, by selecting the Ethereum-Bitcoin (ETH-BTC) pair with a 15-minute time-frame and an information historical past from January 1, 2018 to December 31, 2024 (knowledge supply: Binance ), assess whether or not the anticipated conduct exists for the week by analyzing tendencies in common forex fluctuations for the commodity.

Within the weekly chart proven in Determine 1, every line represents one yr (from 2018 to 2024), and the darkish blue line represents the common over the whole interval. Statistically, except 2021 (plotted in inexperienced), the Ethereum/Bitcoin pair has proven a relentless downward pattern from the start of the week till round Thursday (Bitcoin worth will increase relative to Ethereum), after which It should rise barely over the weekend.

Due to this fact, though the bias is much less pronounced, it nonetheless seems to be current. Due to this fact, a scientific buying and selling technique could be hypothesized to evaluate profitability.

Logic of a biased buying and selling technique for the Ethereum-Bitcoin (ETH-BTC) pair

First, utilizing the Ethereum-Bitcoin 60-minute chart and referencing the UTC time zone, promote (i.e. purchase Bitcoin) at midnight on Monday (the evening between Sunday and Monday) and purchase Ethereum on Friday as effectively. I make a speculation after I purchase (ETH). At midnight. Due to this fact, open positions are closed by opening positions in the other way, with out inserting stop-loss or take-profit orders.

To make the outcomes simpler to learn, every commerce operation is carried out with 100 Bitcoins (BTC), permitting you to guage the outcomes immediately as a proportion of the capital used (precisely 100 Bitcoins (BTC)). Figures 2 and three present the metrics for this quite simple technique with none type of filter utilized to the operation.

Though the pattern is kind of unstable within the historic vary thought-about, it’s straightforward to see how the inventory improve confirms the existence of the bias recognized in Bias Finder.

Evaluating the common transaction, we discover a worth of 0.38 Bitcoin (BTC), which corresponds to 0.38% of the capital employed (100 Bitcoins). Contemplating it is a tough technique, it might even represent sufficient worth to cowl the working prices, however it may definitely be improved.

Ethereum-Bitcoin Technique Optimization: Methods to Enhance Efficiency

First, you may optimize the timing of your market entry by altering the date and entry time. That’s, lengthy entry days between Wednesday and Saturday, and brief entry days between Sunday and Tuesday. Determine 4 reveals the outcomes of the optimization carried out utilizing MultiCharts. Days of the week vary from 0 (Sunday) to six (Saturday). It’s famous that the lengthy entry (buy of Ethereum) at 16:00 on Wednesday is simpler in comparison with Friday, as beforehand hypothesized. Quick entries could be left at midnight on Monday as a substitute, because the outcomes is not going to materially change for those who transfer them ahead or late by an hour.

The following step is to guage the usage of cease loss and take revenue to higher handle open positions. Optimizing the cease lack of 0 to five Bitcoins (akin to 0% to five% of open positions) in 0.1 steps and the take revenue of 0 to 10 Bitcoins in 0.25 steps yields the mix in Determine 5. You possibly can , amongst which you’ll select Cease 1.9 Bitcoin and Take Revenue 7.5 Bitcoin, which can considerably improve the best web revenue. The drawdown fee and common commerce will improve to 0.55%.

As proven in Determine 6, the fairness line steadily improved, as did all beforehand noticed indicators of the technique.

Nonetheless, after we analyze lengthy and brief trades individually, we discover that the lengthy aspect is much less efficient. Due to this fact, you might also think about using worth patterns to filter lengthy entries and solely function when circumstances are favorable for the incidence of a bias. The individual is about to trip. There’s nothing stopping you from doing the identical on the brief aspect, so long as you do not danger filtering an excessive amount of and overfitting your technique.

Conclusions and insights to develop a buying and selling technique primarily based on Bitcoin and Ethereum correlation

The recognized bias between Ethereum and Bitcoin represents an attention-grabbing instance of market inefficiency that may be exploited with a scientific strategy. Regardless of the simplicity of the primary strategy, the outcomes highlighted nice potential, particularly after optimizing the commerce entry and exit guidelines.

This research is meant to be a place to begin for additional analysis into the subject and refine methods to additional enhance efficiency. Alternatives for enchancment are quite a few, and it’s as much as the reader’s curiosity and initiative to discover them to create a simpler system.

Till subsequent time, blissful buying and selling!

andrea unger