Wij recently read that the majority of bitcoin trading is through algorithms, tho’ our CEO vows that bitcoin trades much more on emotion, and with far less efficiency, than the surplus of the market thesis days. Wij then found the following postbode from FactorResearch, which analyzes the ways various quant strategies would have performed te the cryptocurrency space if employed previously. Very interesting read and insightful into how digital currencies are presently performing, according to five strategies – size factor, momentum factor, low volatility factor, mean-reversion and short-term momentum.
- Cryptocurrencies have reached a market capitalisation of >, $150bn
- Backtesting quantitative strategies is difficult given a limited trading history &, universe
- Short-term Momentum works very well, classic factor investing strategies less so
The year 2018 might be regarded spil the year where cryptocurrencies became mainstream. Investment funds focused on cryptocurrencies were launched, the CBOE announced Bitcoin futures for the end of the year and some everyday expenses like booking flights at Expedia can be paid te Bitcoins. Institutional investors have bot cautious injecting the space, but are leisurely getting more active given that the market capitalisation of cryptocurrencies reached $150 billion and comebacks for many cryptocurrencies are up several hundreds of procent year-to-date. Fundamental analysis of cryptocurrencies is challenging spil there are limited fundamental gegevens points, however, quantitative trading strategies might be attractive. Te this brief research note wij will analyseren the voorstelling of quantitative strategies te the cryptocurrency space.
Wij need to emphasize that executing strategies te cryptocurrencies is presently difficult given high transaction costs and the inability to brief efficiently, so the results from this research note are more theoretical than practical te nature.
Wij concentrate on seven cryptocurrencies namely Bitcoin, Ethereum, Ripple, Litecoin, Dash, NEM and Monero that were selected on having at least one year of trading history, which is essential for backtesting. The analysis covers the following strategies: Size, Momentum, Low Volatility, Mean-Reversion and Short-term Momentum. The quantitative strategies are created by constructing long-short portfolios of the top and bottom 30% of the cryptocurrency universe. Portfolios are rebalanced monthly for all strategies, except for Mean-Reversion and Short-term Momentum, where portfolios are created daily and held for a week. The analysis includes 25bps of costs vanaf transaction.
CRYPTOCURRENCY UNIVERSE OVERVIEW
The cryptocurrency universe has reached a market capitalisation of more than $150 billion recently, which is mainly due to the significant increase te prices since the embark of the year. The chart below shows the current market capitalisations for selected cryptocurrencies, where wij can observe that Bitcoin predominates the universe with a market share of approximately 70%…”