In the previous report, we found the volatilities of OKEx’s nine major tokens are clustering on different levels relatively. As shown below, the simultaneous tide-up and -down volatility of overall markets at recent price-up and -down got attention from the market participants.
Further deeper, from the correlation report, we observed BSV’s volatility level is pretty high, compared to others and it shows a detaching relationship of itself from others (correlation with BTC= 0.38, which is relatively low) at price drop, and marching together (correlation with BTC= 0.66, which is relatively high) at price up.
Thus, we chose to look deeper at how this can lead to any investment idea.
High volatility leads to higher returns, with robust trading assumptions and execution.
- Led to less number of trades, higher return with “right” execution for highly volatile tokens.
- Finding the right markets for each token should be interesting, and absolutely, rewarding.
I. Opportunity: Statistical Arbitrage Trading
Since it is a strategy implemented by many professionals and active traders, in both the traditional and crypto markets, we simply check this trading opportunity with relevant markets.
- Exchange H is one of the most liquid markets for BSV trading
As shown above, there are some price discrepancies between the two markets, and this is an absolute opportunity for (almost) riskless trading profit.
Thus, we implemented simple and robust trading logic: “Buy cheap, Sell expensive”, between two markets, with the initial investment of 10,000 USDT. With trading signals based on price differences, we put a fixed amount of position long and short at each trade, assuming no transaction fees, slippages, etc.
Here we can see the balance changes of each exchange and total balance, which is DOUBLED!
The following shows ROI (Return on Investment) with respect to the Number of Trade, which is a strongly effective investment scheme, even considering commissions and slippage, which we drop for the robustness of hypothesis check.
II. Same strategy for BTC
If BSV is working well, we may think about others, especially BTC. So we select another exchange B, which is one of the most liquid markets for BTC/USDT trading.
Because of scale, the price difference is not shown clearly, but from the table, yes, there is small but many arbitrage opportunities, as shown below. Check the number of trades.
With the same strategy and settings, we see less volatile BTC arbitrage is not producing a high profit, compare to BSV. And there should be some consideration we need to check before implementing this strategy.
- Since the unit price of BTC is higher than BSV, we may rethink the scale of running capital.
- We need to adjust parameters about trading signals and following execution with respect to BTC, which has different properties, such as limiting the number of trades.
- BTC is the most traded tokens, so arbitrage opportunity disappears relatively fast.
Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.
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