Reading 2022-03-28

Metadata

• Ref:: Finimize
• Title:: Your Crypto Might Do Better With Good Timing Than Patience
• Author:: Jonathan Hobbs
• Year of publication:: 2022
• Category:: Blog
• Topic:: #topic.cryptoasset
• Related::

Notes from reading

rather than trying to predict future crypto prices, you buy or sell different investments based on a simple moving average (momentum strategy)

For this strategy, we’ll use the 50-day moving average (SMA). The chart below shows the price of bitcoin, alongside its 50-day SMA in blue – but you can apply this strategy to other digital assets too. The rules are:

• Buy bitcoin (or another digital asset) with US dollars when the price crosses above the 50-day SMA at the end of the day.
• Sell bitcoin (or another digital asset) for US dollars when the price crosses below the 50-day SMA at the end of the day.

some assumptions of the strategy

• you only buy or sell crypto when the price crosses above or below the 50-day SMA at the end of the day
• we should factor in trading costs
  • Trading fees: the fees you pay to a crypto exchange to buy or sell a position
    • maximum of 0.10% per trade (at Binance)
  • Slippage: the adverse price impact from buying or selling a position at the market price
    • For example, you might want to buy bitcoin for $50,000 but end up paying $50,050 on the exchange. That’s a further 0.10% loss before you’re even out the blocks

Backtested results how the strategy would have performed from the first day of 2018 until the last day of February this year. And I’ve compared the results for bitcoin, ethereum, and ripple versus a “buy and hold” strategy over the same period. Assuming a USD 1,000 initial investment

In all three tests, you can see how my strategy outperformed a simple buy and hold one. With BTC and ETH, an investor would have made more money. And with XRP, an investor would have lost less money

On this occasion, timing the market did actually beat time in the market.

Limitations of this strategy:

• increasing the trading costs would’ve drastically depleted the returns
  • With the 0.2% total fee used, the BTC, ETH, and XRP strategies would’ve beaten buy and hold by 222%, 143%, and 117%, respectively
  • But if we increased the trading fee to 1% – which is unusual but can happen with larger trade sizes – those numbers drop significantly: the BTC strategy would have outperformed by 86%, ETH by 31%, and XRP by less than 1%
• If prices are constantly ranging above and below the 50-day moving average, you’ll get chopped around a lot, not to mention the additional fees that trading more will rack up