Earnio results for June 2024

Tomáš Hucík

If you look at a bitcoin graph, you can see that its price is moving in a slightly downward channel. This suggests that the market is cooling down and may mean that we will be looking at even lower levels soon. 

Bitcoin has been moving in a downward trend since mid-February, with slight breaks in either direction being of short duration. Source: tradingview

Bitcoin has been moving in a downward trend since mid-February, with slight breaks in either direction being of short duration. Source: tradingview 

Looking at the bitcoin chart, it is evident that its price is moving in a sideways channel, with no clear direction. This suggests that the market is consolidating and could mean that we will see a return to uptrend soon.

Bitcoin has been moving in a sideways channel since mid-February, with modest breakouts in either direction of short duration. Source: tradingview

Bitcoin has been moving in a sideways channel since mid-February, with modest breakouts in either direction of short duration. Source: tradingview 

If you look at the bitcoin graph a little more closely, you'll notice that it's actually the same graph, just stretched differently. In investment analysis, a lot depends on what the analyst actually wants to see and also on his own biases. So his assessment of objective facts (in this case the graph) may well be very subjective (the channel drawing). 

This is why quantitative analysis, i.e. the analysis of large amounts of data, is so important. It is a method by which we build our trading algorithmic strategies. It's critical to use as many metrics as possible to assess the current situation and make decisions based on the relationships between them. 

For example, I regularly mention the bitcoin spot ETF in my articles about Earnio's results. These are exchange traded funds that have bitcoin as their underlying asset. These funds buy or sell bitcoins depending on how much demand there is for these funds and in terms of the history of all ETFs, launching them is a huge success. 

And even now, a few months after launch, there is a huge interest in these ETFs and they continue to have very high positive inflows, i.e. they are buying very high amounts of bitcoin from the market. 

Graph of BTC flow "from" and "to" bitcoin ETFs. The graph shows that the flows in and out have not stopped yet. Source: the block

Graph of BTC flow "from" and "to" bitcoin ETFs. The graph shows that the flows in and out have not stopped yet. Source: the block 

But in contrast to this demand for bitcoins, sales by the German authorities are also having an impact on the market. In fact, German authorities are selling bitcoins that they have seized as part of their criminal proceedings. According to German regulations, all items seized in this way must be sold, and so Germany is forcibly selling about 50k btc to the market. 

This selling pressure caused a bit of panic at first, but most of these BTCs have already been sold, so it was probably just a one-time thing. 

Germany only holds around 5,000 BTC now; at the beginning it was almost 50,000 BTC. Source : Arkham Intelligence

Germany only holds around 5,000 BTC now; at the beginning it was almost 50,000 BTC. Source : Arkham Intelligence 

Sales driven by fears of a potential downturn due to Mt. Gox are having a similar effect on the market. 

This now defunct bankrupt bitcoin exchange, Mt. Gox, starts distributing assets stolen from clients in a hacking attack in 2014. The repayment increases the selling pressure on the bitcoin (BTC) market, whether the bitcoins are sold by genuine Mt. Gox clients or just by other market participants who fear these sales and therefore actually try to outbid them and sell beforehand. 

One of the interesting indicators is the Fear and Greed index. It is an indicator that shows how the market is currently in a relative fear or greed phase based on a set of indicators such as price movement, trading volumes, social media metrics, media mentions, etc. 

We are currently somewhere around a relative value of 30. The last time values were this low, we were at much lower prices. In January 2023, for example, it was around the bottom of the last bearmarket. It's interesting how volatile this index is and can really change from day to day. (EDIT: as of the date of publication of this article, it has been pushed up again by, for example, the assassination of Donald Trump.) 

Fear and greed index. Relatively low at the time of writing. Source: alternative.me

Fear and greed index. Relatively low at the time of writing. Source: alternative.me 

The situation in our portfolio 

This uncertain environment is not playing well for our algorithmic strategies. We continue to have them set up primarily with growth expectations, and so they flounder in a stagnant market and fail to deliver compelling numbers. Trades are opened, but after a while they are closed in a small profit or a small loss, and so the result of the algo part of the portfolio oscillates around zero. 

On the other hand, the volatile environment relatively suits our non-vector strategies like market making. They are not dependent on the direction of the market, it is enough for them that there is a sufficient volume of trades in the market for them to cut a small chunk off in the form of a fee. 

In the meantime, we are focusing on strengthening our infrastructure in view of the weak market situation. 

We are currently planning and preparing the ground (tuning onboarding processes) for the expansion of our trading team. If you have someone who is interested in trading, statistics and is no stranger to programming in Python, for example, let us know. 

We've also been tweaking our trading model to include transaction costs. It's relatively easy to get price data from a chart, but the outcome of a trade and the ultimate profitability is also heavily influenced by trading costs, such as trade fees or slippage, which can be quite variable and need to be accounted for. We are therefore working on improving the modelling of strategy outcomes after accounting for these transaction costs. 

We're also working on a new dashboard, which I've already had a chance to try out a bit. It allows trading team members, even those who don't know how to program, to simulate and nicely render the portfolio structure according to composition and risk level. 

I believe in a few weeks/months I will be able to show this to clients in one of the webinars, if my colleagues allow me. This is because it is our technological know-how that gives us an edge in the market. 

Despite the short-term unfavorable development in the cryptocurrency markets, we managed a very nice result of 2.02%, mainly thanks to our non-directional strategies. 

If you have any questions about how Earnio works, don't hesitate to ask, we'll be happy to answer them. 

Earnio results for July 2024

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Earnio Results of February 2024