Relative Returns

New year, big moves! The crypto market experienced some significant buying pressure for the majority of the month of January. Comparing the relative returns graph for the month of January with the last two months, shows an immediate change in behaviour. Leading up to January the market was mostly ruled by the Bears, who were able to push price down further and further for most digital assets, with Bulls only getting occasional, very short lived upward moves. However, this year's holiday spirits were not as destructive as initially thought towards the end of last month, with 2020 off to a great start.

Recalling from last month's report, there was mention of a consolidation period towards the end of December (see Relative Returns of December graph below), with hopes of an upwards break. January did not disappoint on that front. ALL assets in the report are up this month, which is only the second time this has happened since we have started sharing these reports. The only other time was in October 2019. However the magnitude of gains this month are much larger than the ones in October, with LTC surpassing 70% gains in a single month. Even the two smallest gainers are coming in above 20% for XRP and just above 30% for BTC, which would have topped all of the months that we have Market Overview coverage for.

Relative Returns -- December 2019

And yes, you read that right, BTC is not close to the top of the pack this month. You might wonder if 2020 will be the year of Altcoins? However, one month of positivity might be a bit too little of an argument to claim it, but needless to say, the relative returns graph is hinting towards it being at least a possibility.

January 2020, Biggest Changes

10-Hour Rolling Volatility

Overall the month of January has been relatively volatile; significantly less volatility than was in play during the 2017 Bull Run, but it is an increase in volatility that coincided with a great month for all things crypto.

Looking at the volatilities throughout the month, and comparing them to volatility readings from prior months, it becomes apparent that it was much more tumultuous than the final months of 2019. We have seen similar volatility readings back towards the end of October 2019, when we also entered a small “Bull-run”, that unfortunately only lasted two weeks. However, we have already beaten that run in terms of length and overall gain, producing a great early sign to a potentially lucrative year of 2020.

Notable throughout January was the volatility spike from EOS towards the middle of the month on January 14th. EOS was trending towards the bottom of the pack in terms of gains for the first half of the month, but the two weeks that followed moved EOS into position number two in terms of gains. On January 12th EOS did a major Software upgrade, releasing EOS.io 2.0. It was well received by the market, shown by the price spike on the 12th and shortly after. A small correction followed in classic crypto fashion, but was quickly eaten up again by the Bulls that pushed EOS ahead of the pack, only to be taken over by LTC two days before the end of the month.

Correlations

Correlations have increased in general terms when comparing them to the month of December 2019. It is interesting, but most likely not surprising, to see that the correlations between BTC & ETH as well as BTC & LTC have been consistently above 0.74 for the past 4 months. Making these assets great contendenders for a pairs trading strategy along with the ETH & LTC as well as ETH & EOS pairs that were mentioned in last month's report.

Considering the highest correlated pairs this month, ETH & LTC, correlations are still above 0.8 for the fourth consecutive month. Following the price graphs for the two coins for the month, or even the four months prior, it is easy to see the correlation between the two by just following their respective price charts on a normalized scale. However, what is also important to note, especially if you are playing with the idea of Pairs Trading (Convergence/Divergence Trading), is that the assets sometimes move somewhat in opposite directions, and then catch up with each other again, in relative terms. That part is crucial for anyone wanting to create a profitable pairs trading strategy, since you want to be shorting the overperformer and longing the underperformer of whichever pair you have chosen. As a trader, you are now hoping that the two coins converge back to readings that you have set as your threshold. With that being said, realistically you will open one losing position and one winning position (Even though in theory both positions could be positive or negative), with the end goal to have the winning position be bigger than your losing position consistently throughout your trading horizon.

Notable News & Announcements

Canadian Securities Administrators (CSA) Releases Staff Notice on Crypto Trading

State Street Includes Tokenization and Cryptocurrency Investment in Industry Dialogue

Financial Conduct Authority (FCA) Releases New Data Strategy for 2020

Coinbase Custody Officially Launches Internationally

About Consilium

Consilium Crypto is a big data company that provides quantitative and qualitative insights to market participants in the digital asset space, including funds, family offices and exchanges.

Consilium analyzes 17,000 trading pairs, over 1000 assets, across 50+ exchanges, and tracks trading activity to the millisecond. Our system monitors raw transaction data, as well as complete price and liquidity information from order books around the globe. These data pipelines power our core products, designed to help funds find alpha and place large orders efficiently in times of thin liquidity.

For more information, send an email to info@consiliumcrypto.ai

DISCLAIMER: Consilium Crypto Inc. research and recommendations are meant for educational purposes only and the opinions expressed do not constitute investment advice. Independent advice should be sought where appropriate. The information in this report is provided "as is" and "as available". All information and opinions expressed herein are current as of publication and are subject to change without notice. Consilium Crypto Inc. does not warrant the accuracy of the materials provided herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or fitness for a particular purpose. This document is provided for informational purposes only and should not be used for investment decisions. This is not an offer to sell or a solicitation of an offer to buy any security referenced in this document. Consilium Crypto Inc. does not provide financial or trading advice. For any questions or clarifications, please contact info@consiliumcrypto.ai.