Invest Without Emotions
Binance is one of the longest surviving crypto CEX (Centralized EXchange). At last count, they had around 3000 tokens listed. Just like how it is in tradfi exchanges, most of the liquidity is concentrated in the top 50% of tokens.
We use the bid/ask spread as a short-hand for liquidity.
If you want to keep your trading costs in check, then play in the top 5 deciles.
Data is the lifeblood of quantitative research and trading. The first step is to understand the benefits and shortcomings of different data sources and mapping out their use for the tasks at hand.
For example, Tiingo does a fantastic job of consolidating prices from different exchanges and presenting it through an easy to use API. While the consolidated tape is a decent starting point for developing trading strategies, you can’t trade the consolidated tape – you can trade only at a handful of venues, mostly just one.
How do Hyperliquid quotes compare with the Tiingo consolidated tape? Most of the time, the differences are within a tight range (zero mean and median). However, there are certain times when the quotes are way off even for the most liquid coins.
There have been instances where the quoted mid was off more than 10% from what Tiingo reported.
Given that there are dozens of crypto exchanges and the volatile nature of the coins themselves, some of these differences are inevitable. However, the data highlights an inefficiency and the need to have multiple exchange feeds so that you don’t shoot yourself in the foot while trading.
Code and charts are up on github.
Our introduction to trend-following posts on Zerodha Varsity (Part I, II, III, IV and V) used tradfi instruments to build a basic model. What if we applied the same principles on crypto assets?
To keep things simple, we’ll pick only two assets: BTC and ETH. The portfolio is evenly split between the two. Since crypto markets are 24/7/365, we’ll divide each day into 24 hour slots and construct a daily series based on the closing prices at each hour. The portfolio is further split into 24 parts each. Each position is an average of a binary trend signal.
Individually, trend-following boosts the Sharpe ratio of each asset.
You may not have captured the absolute highs but you would have avoided the steep drawdowns.
They are stronger together than individually.
Needless to say, leverage in this scenario would be fatal.
Code on github.
Hyperliquid is probably the most hyped DEX (decentralized exchange) right now. The advantage the CEXs (centralized exchanges) had was in the “ease-of-use” area, especially in the on-boarding and trading APIs front. Hyperliquid tries to marry the convenience of a CEX and the benefits of a DEX.
We downloaded their historical order book to check the spreads and depth of popular coins.
BTC, ETH and SOL are a world apart – tight spreads and deep books.
However, trading the less popular coins needs some care.
Zooming into the spreads brings out the difference between the top-tier coins (BTC) and the rest (PENDLE).
The ranges look decent if you are trading a retail-sized book.
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Archives: Cryptonite on StockViz