Tutorial
Bitcoin price
Mean and standard deviation of return
A mean return is also known as an expected return and can refer to how much a security returns on a daily basis. However, a mean return does not guarantee a future rate of return and is only one tool that an investor should consider when evaluating an investment before purchasing it.
Standard deviation is the statistical measure of market volatility, measuring how widely prices are dispersed from the average price. If prices trade in a narrow trading range, the standard deviation will return a low value that indicates low volatility.
Kurtosis
Kurtosis is a statistical measure that describes the shape of a distribution's tails in relation to its overall shape. Distributions with large kurtosis exhibit tail data exceeding the tails of the normal distribution.
Rachev ratio
The Rachev ratio is a reward-to-risk ratio, which is designed to measure the right tail reward potential relative to the left tail risk in a non-Gaussian setting. Intuitively, it represents the potential for extreme positive returns compared to the risk of extreme losses (negative returns).
Dasboard
Traditional Market short-term coupling is calculated using the following weights:
- 75% to Nasdaq.
- 25% to US Dolar Index.
- 25% to Gold Prices.
Futures to spot volume ratio indicator is calculated using the maximum value as 100%.
Technical Analysis
Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities atistical trends gathered from trading activity, such as price movement and volume.
Exponential moving average (EMA)
The exponential moving average (EMA) is a technical chart indicator that tracks the price of an investment (like a stock or commodity) over time. The EMA is a type of weighted moving average (WMA) that gives more weighting or importance to recent price data. Like the simple moving average (SMA), the EMA is used to see price trends over time, and watching several EMAs at the same time is easy to do with moving average ribbons.
Boolinger Bands
A Bollinger Band® is a technical analysis tool defined by a set of trendlines plotted two standard deviations (positively and negatively) away from a simple moving average (SMA) of a security's price, but which can be adjusted to user preferences.
A Z-score is a numerical measurement that describes a value's relationship to the mean of a group of values. Z-score is measured in terms of standard deviations from the mean. If a Z-score is 0, it indicates that the data point's score is identical to the mean score. A Z-score of 1.0 would indicate a value that is one standard deviation from the mean. Z-scores may be positive or negative, with a positive value indicating the score is above the mean and a negative score indicating it is below the mean.
While the implied volatility refers to the market's assessment of future volatility, the realized volatility measures what actually happened in the past. We calculate the realized volatility by taking the standard deviation of the daily returns with a lookback of 30 days.
Moving Average Convergence Divergence (MACD)
Moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. The MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. The result of that calculation is the MACD line. A nine-day EMA of the MACD called the "signal line," is then plotted on top of the MACD line, which can function as a trigger for buy and sell signals. Traders may buy the security when the MACD crosses above its signal line and sell—or short—the security when the MACD crosses below the signal line. Moving average convergence divergence (MACD) indicators can be interpreted in several ways, but the more common methods are crossovers, divergences, and rapid rises/falls.
Relative Strength Index (RSI)
The relative strength index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100.
Fundamental Analysis
Fundamental analysis (FA) measures a security's intrinsic value by examining related economic and financial factors. Intrinsic value is based on the financial situation, current market and economic conditions. The end goal is to determine a number that an investor can compare with a current price to see whether the project token is undervalued or overvalued by other investors.
Price-to-Sales Ratio (P/S)
It is a valuation ratio that compares a projetc's token price to its revenues. The P/S ratio is calculated by dividing the price by the underlying revenues per share.
Revenue
It is the money generated from normal business operations (mainly fees), calculated as the average sales price times the number of units sold.
Market Cap
Market capitalization, or "market cap", is the aggregate market value of the project represented in a dollar amount. Since it represents the “market” value of a company, it is computed based on the current market price of its tokens and the total number of tokens.
Total value locked (TVL)
It is defined as the total value of cryptocurrency locked in the smart contracts of the project.
Other metrics
Hurst Exponent
The Hurst exponent (H) is as a measure for long-term memory of a time series, that is, to measure the amount by which that series deviates from a random walk. The scalar represents the relative tendency of a time series either to regress strongly to the mean (mean-reverting pattern) or to cluster in a certain direction (trending pattern). The values of the Hurst exponent range between 0 and 1. Based on the value of H, we can classify any time series into one of the three categories:
- H < 0.5 — a mean-reverting (anti-persistent) series. The closer the value is to 0, the stronger the mean-reversion process is. In practice, it means that a high value is followed by a low value and vice-versa.
- H = 0.5 — a geometric random walk.
- H > 0.5 — a trending (persistent) series. The closer the value is to 1, the stronger the trend. In practice, it means that a high value is followed by a higher one.
In momentum-based strategies, the investors try to capitalize on the continuance of the existing market trend. In contrast to mean-reverting strategies, momentum strategies benefit from stop loss in a very logical and straightforward way. If a momentum strategy is losing, it means that momentum has reversed, so logically we should be exiting the position and maybe even reversing the position.
Mean-reversion assumes that properties such as stock returns and volatility will revert to their long-term average over time.
Fear and Greed Index
The crypto market behaviour is very emotional. People tend to get greedy when the market is rising which results in FOMO (Fear of missing out). Also, people often sell their coins in irrational reaction of seeing red numbers. With our Fear and Greed Index, we try to save you from your own emotional overreactions. There are two simple assumptions:
- Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
- When Investors are getting too greedy, that means the market is due for a correction.
Bitcoin Dominance
Bitcoin dominance is the ratio between the market capitalization of Bitcoin to the total market cap of the entire cryptocurrency market. When we compare this ratio to the trend of Bitcoin itself, we can learn more about what opportunities the current market environment offers.
Market Iliquidity
We measure the market liquidity as the ratio of the volatility (Rogers-Satchell Model) to volume, to see where a lot of volume had a great impact. Whenever the market trades a lot of volume without much price impact (measured in this case with the volatility), the market is liquid.
Correlations
Pearson correlation measures the strength of the linear relationship between two variables. It has a value between -1 to 1, with a value of -1 meaning a total negative linear correlation, 0 being no correlation, and + 1 meaning a total positive correlation.
While Pearson's correlation assesses linear relationships, Spearman's correlation assesses monotonic relationships (whether linear or not). If there are no repeated data values, a perfect Spearman correlation of +1 or −1 occurs when each of the variables is a perfect monotone function of the other.
Degree of correlation:
- Perfect: If the value is near ± 1, then it said to be a perfect correlation: as one variable increases, the other variable tends to also increase (if positive) or decrease (if negative).
- High degree: If the coefficient value lies between ± 0.50 and ± 1, then it is said to be a strong correlation.
- Moderate degree: If the value lies between ± 0.30 and ± 0.49, then it is said to be a medium correlation.
- Low degree: When the value lies below + 0.29, then it is said to be a small correlation.
- No correlation: When the value is zero.
Beta value
A beta coefficient can measure the volatility of an individual token compared to the systematic risk of the benchmark (in this case BTCUSDT). In statistical terms, beta represents the slope of the line through a regression of data points.
- If the token has a beta of 1.0, it indicates that its price activity is strongly correlated with BTCUSDT.
- A beta value that is less than 1.0 means that the token is theoretically less volatile than BTCUSDT.
- A beta that is greater than 1.0 indicates that the token's price is theoretically more volatile than BTCUSDT.
Traditional markets
Correlation with Gold
Bitcoin and gold gain their value from a limited supply and a rising consumer demand during periods of increased consumer price pressures. Gold prices have historically done well during periods of high inflation.
Correlation with US stocks
While bitcoin is often described as an alternative to gold, its historical price action suggests it's more closely related to stocks. Investors have flocked to the cryptocurrency sector with the objective of gaining exposure to returns that are uncorrelated to traditional asset classes like stocks, bonds, and precious metals, as well as hedging against rising inflation.
Derivatives
A derivative is a contract between two parties which derives its value/price from an underlying asset. The most common types of derivatives are futures and options.
Funding Rate
Funding rates are periodic payments either to traders that are long or short based on the difference between perpetual contract markets and spot prices. Therefore, depending on open positions, traders will either pay or receive funding.
Long/short Ratio
The proportion of net long and net short accounts to total accounts with positions. Each account is counted once only.
Open Interest
Open interest is a tool that can prove to be very insightful for traders. It provides, in real-time, a total number of open positions held by market participants. The open interest is founded by summing the quantity of all opened trades and then subtracting the number of trades that have been closed.
Implied Volatility
Implied volatility is the market's forecast of a likely movement in price. It doesn't predict the direction in which the price change will proceed. For example, high volatility means a large price swing, but the price could swing upward (very high), downward (very low), or fluctuate between the two directions. Low volatility means that the price likely won't make broad, unpredictable changes.
Term Structure
The term structure of interest rates is the relationship between interest rates and different maturities. The term structure of interest rates reflects the expectations of market participants about future changes in interest rates. In general terms, yields increase in line with maturity, giving rise to an upward-sloping, or normal, yield curve. One basic explanation for this phenomenon is that investors demand higher interest rates for longer-term investments as compensation for investing their money in longer-duration investments. This is important as it is a gauge market's feeling about risk.
Greeks
The variables that are used to assess risk in the options market are commonly referred to as "the Greeks".
- Delta: represents the rate of change between the option's price and a $1 change in the underlying asset's price. In other words, the price sensitivity of the option is relative to the underlying asset.
- Gamma: represents the rate of change between an option's delta and the underlying asset's price. It indicates the amount the delta would change given a $1 move in the underlying security.
- Vega: represents the rate of change between an option's value and the underlying asset's implied volatility. It indicates the amount an option's price changes given a 1% change in implied volatility.
- Theta: represents the rate of change between the option price and time, or time sensitivity—sometimes known as an option's time decay. Theta indicates the amount an option's price would decrease as the time to expiration decreases, all else equal.
- Rho: represents the rate of change between an option's value and a 1% change in the interest rate. This measures sensitivity to the interest rate.
On-chain Analysis
On-chain analysis is an emerging field aiming at extracting and scrutinizing the available data about public Blockchain transactions to facilitate a better decision making. Its tools and techniques are often applied for trading and investment purposes.
Exchange flow is defined as an amount of coin deposited and coin withdrawal into the known exchange wallets.
Portfolio Optimization
Invented by Nobel Prize winner Dr. Harry Markowitz in the 1950s, is an approach to determine the “optimal” weights for an investment portfolio that maximizes the returns (represented by the expected return of a portfolio) while still minimizing the risks (as reflected by the standard deviation of the returns). A useful way of visualizing the performance of differently weighted portfolios is to plot the average and standard deviation of the returns.
The Sharpe Ratio can be thought of as essentially the slope of the Capital Allocation Line and describes how much excess return over a risk-free asset you receive for the extra volatility experienced. Using this, we can estimate the portfolio with the highest Sharpe Ratio which reflects the portfolio that gives the “best” risk-reward profile. Typical values range from: