How volatility drove one crypto trading strategy to 280x Bitcoin’s gains
What does a highly volatile asset class offer traders, beyond palpitations and the occasional heart attack? Opportunity.
Nicole Wirick of Prosperity Wealth Strategies in Michigan summed it up for Forbes: “Market volatility is a normal part of investing and is to be expected in a portfolio. If markets went straight up, then investing would be easy and we’d all be rich.”
And during the decade-long bull market on Wall Street, some participants who should know better appear to have forgotten this, as they’ve become used to steadily-increasing stock prices over a period of years.
JPMorgan Chase CEO Jamie Dimon, who infamously referred to Bitcoin as a “fraud” in 2017, told the U.S. House Financial Services Committee this week that “My own personal advice to people is: stay away from it.” And yet at his own shareholder meeting on May 18, he said that “A lot of our clients are asking, ‘can we help them buy or sell cryptocurrency? And we’re investing in that as we speak.”
So why is the CEO of the largest bank in the U.S. investing in something that he advises the rest of us not to touch?
Volatility is at the heart of that argument: It’s a classic case of “Do as I say, not as I do.” And Dimon, and many like him in traditional financial markets, make oodles of money when markets are choppy.
Of course, no markets are choppier than crypto.
Over the past few weeks, volatility has returned to the crypto markets, pushing Bitcoin as low as $30,000 before the king of digital assets swung back to exceed $40,000 again. And altcoins have swung even more dramatically — a phenomenon which has helped Cointelegraph Markets Pro’s quantitative algorithm, the VORTECS™ Score, to post extraordinary results in automated live testing.
This chart, produced on May 28 illustrates the results of the VORTECS™ Score’s performance since Jan 3 this year, when the algorithm went live. At the time of publication, one day later, the ROI on the top strategy is now over 3,000%.
In a score-based testing scenario, the algorithm “buys” a digital asset when the VORTECS™ Score crosses a certain threshold (e.g. 80), and “sells” it when it crosses a second threshold (e.g. 75).
Without employing fancy rebalancing techniques, but simply dividing the portfolio between all assets that currently require an investment, the algorithm has delivered a return of 3,037% for its highest-performing testing strategy — buying at 80, and selling when the asset crosses 80 again on the way back down.
For comparison, Bitcoin has generated returns of just 11.2% since Jan 3, and an evenly-weighted basket of the top 100 altcoins has returned 247%.
The only reason the VORTECS™ Score can deliver outsized returns like this is because crypto markets are volatile — which presents multiple entry and exit opportunities in a shorter timeframe than enjoyed by traders in traditional markets.
That may be partly a function of the 24/7 nature of crypto trading, but it’s also partly because the risk tolerance of cryptocurrency investors is generally agreed to be significantly higher than that of Wall Street CEOs… at least for short-term investing.
So while volatility has obvious downsides, including the risk of total and permanent loss, it also has major potential upside for traders who have strong research skills.
Cointelegraph Markets Pro is available exclusively to members on a monthly basis at $99 per month, or annually with two free months included. It carries a 14-day money-back policy, to ensure that it fits the crypto trading and investing research needs of subscribers, and members can cancel anytime.
Cointelegraph is a publisher of financial information, not an investment adviser. We do not provide personalized or individualized investment advice. Cryptocurrencies are volatile investments and carry significant risk including the risk of permanent and total loss. Past performance is not indicative of future results. Figures and charts are correct at the time of writing or as otherwise specified. Live-tested strategies are not recommendations. Consult your financial advisor before making financial decisions. Full terms and conditions.