Between late 2020 and 2021, the entire cryptocurrency market has experienced sustained periods of upward movement and several bull cycles. As a result, investors made exponential profits up to 1000x, 10000x, and even more. However, since November 2021, when Bitcoin recorded its all-time high, the market has been bearish, massively ripping into profits and even the equity of investors.
LUCIDA is a quantitative crypto hedge fund in the cryptocurrency market.Crypto crashes are almost always predictable because price patterns obey history. However, you may not know the correct analysis to make as an investor if you cannot effectively research history. LUCIDA seeks to solve this problem by digging through data, combing through history, and discovering rules that the market obeys.
This article, “5 million rows of data recap,” is the first of many series that seeks to research cryptocurrency’s history through the bull run to provide adequate investment insights for the future.
Data acquisition and preprocessing
The research included a quantitative analysis of the performance of the top 3,000 coins by market capitalization during the last bull run (From January 1, 2020, to May 24, 2022).
The data was obtained from coinmarketcap, and information gotten includes: the date, open price, close price, high price, low price, volume, and market capitalization. This raw data was processed and analyzed before reaching conclusions based on the results gotten.
For subsequent analysis, we preprocessed the data, including:
- Modifying outliers’ values
- Filling in empty values
- Removing stablecoin assets
- Removing anchored assets such as wBTC and renBTC
- Removing assets that were largely pinned due to poor market depth
- Removing currencies with too small market value and too low liquidity (mainly outside the top-1000 market cap ranks)
- NFT assets were not accounted for
After preprocessing the data, only 952 coins meet the standards for statistical analysis.
The highest Increase is 960,000 times !!!
Looking at the top 100 currencies with the highest increase, the most significant increase was Shiba Inu, with an increase of 96482030.32% (we have counted the order of magnitude, yes, 960,000 times! ), and the current market value ranks 19th.
Don’t just buy anything in Bull Markets: Not everything will outperform the market
From the data, we calculated the median of the largest increase to be 2002.23%, while Bitcoin’s return during this period was 1259.27%.
Using BTC as a comparison index, we can conclude that the Alpha return is 2002.23% and the beta return is 1259.27%; hence, we can see that the Alpha only mildly outperforms the beta return. This means that a lot of altcoins will perform below the index (Bitcoin).
Therefore, it is a misconception to think that “any coin can outperform the broader market during a bull run” because, from the data above, it is evident that many smaller cap coins will not outperform the index coin (BTC). Hence, if currency selection and timing aren’t made well, the income on altcoins may not be as profitable as holding Bitcoin.
Can’t time your entry into Altcoins? Watch Bitcoin
Next, from the data, we calculated the “start time,” “end time,” and “duration” of the maximum increase period of all cryptocurrencies. This helps us to know the perfect entry/exit for altcoins by identifying “when to buy the bottom” and “when to sell at peak prices.”
The above picture shows the “frequency of the start time during the maximum increase period.” The x and y-axes represent time and frequency, respectively; the bars in the chart indicate the bottom period of these currencies. The lowest periods of the cryptocurrencies were concentrated in March 2020 and July 2021, after the “312” and “519’ plummet.
The second picture indicates the “frequency of the end during the maximum increase period.” The x and y-axes represent time and frequency, respectively; the bars in the chart indicate the peak period of these currencies. Most of these cryptocurrencies peaked around April 2021 and November 2021, which coincides with the peak times of Bitcoin.
Hence, considering the numbers, it is safe to say that Altcoins rarely move independently; instead, they follow the trend of the index – Bitcoin. Hence, if you are not sure of altcoin trends, it is better to analyze Bitcoin before making a judgment call.
Time is the best friend of high profits
Next, the time interval frequency during the maximum increase period is analyzed. This is done by checking the times when the highest and lowest prices appear before counting frequency.
From the data, we can see that the highest points in the histogram are concentrated around day 20 and day 400, i.e., the peak period of a currency falls between two different categories.
a. The launch period (within 20 days)
b. A year after launch (400 days)
Hence, if you want to enjoy the best returns of the bull market, holding a position for over a year may be the most profitable choice.
Be mentally prepared to be trapped or “cut in half.”
After calculating profits, it’s only fair that we calculate the risks involved.
The first metric to calculate is the maximum drawdowns during the bull run, i.e., the largest pullback when the market experienced a maximum increase.
The mean and median maximum drawdowns are 50.63% and 57.02%, respectively. This means that you must be mentally prepared to hold your positions amid crazy losses in a bull market.
Also, the median drawdown period was 31 days, the mean was 43 days, and the longest maximum drawdown period was 322 days. Hence, we can see that even in the best bull runs (3 years in this case), you can be trapped for over a month on average, and you may even be trapped for a year in extreme cases.
When Bitcoin trades sideways at a high level, it is a signal for investors to buy the lows and sell the highs of altcoins and lighten their overall positions.
Still calculating risks, we will estimate the periods where the biggest drawdowns usually occur. The chart below shows the frequency of the largest drawdown, which peaked in August 2020 and February-April 2021.
During these periods, the trend of the index coin (Bitcoin) showed a high level of sideways movement (stagnation); hence, this signifies that when Bitcoin moves sideways at a high level, then altcoins will vastly experience drawdowns due to their higher rate of volatility.
You should sell if a new high is created after a high-level giant shake or a flashback happens before a bearish reversal.
The maximum drawdowns period doesn’t signify the end of the bull run. From the data above, the first bull run ended in April 2021, two months after the largest drawdowns ended in February 2021.
However, the new highs recorded after the February dip weren’t sufficient to hold the market, and the bull run ended shortly after – within two months.
Conclusion and Summary
We have analyzed the last bull market within the last three years from the perspectives of “risk and reward.” From the data, we have gotten several insights, some of which align with existing sentiments and some which reorient our understanding of the crypto market.
Hence, analyzing these 5 million rows of crypto market data will help us understand the market from a more objective and higher latitude perspective.
This research is holistic, covering the entire cryptocurrency market; however, as a part of this series, we will write more research reports to give adequate insights into secondary market investment and data, which includes:
- Analysis of different aspects, including underlying infrastructure, NFTs, DeFi, SocialFi, GameFi, DAOs, and research on rotation laws
- Analyzing different ecosystems, including Ethereum, Polkadot, Solana, etc.
- Analyzing altcoin strategy (multi-factor currency selection, entry and timing strategy, enhancement and hedging strategies)
- Performance analysis of investment institutions
If you are interested in any of the topics above and want to be a part of our research, please send an email to contact@lucida.fund. Also, you can reach us on the same email for business collaboration, data acquisition, and content reprinting.
Please indicate the purpose for reaching out as the email title; thank you.
About LUCIDA
LUCIDA is a quantitative crypto hedge fund located in the Cayman Islands. LUCIDA entered the crypto market in April 2018 with massive investments in the secondary market; we are mainly engaged in CTA, statistical arbitrage, options, and other financial derivatives strategies. Also, LUCIDA provides financial management services for high-net-worth clients, and we release in-depth investment research reports from time to time.
Contact info: zhengnaiqian@lucida.fund / contact@lucida.fund
Twitter：@ZnQ_626 / @lucidafund