Newsletter: Wrapping Up 2024-Crypto Trading Strategy and Money Laundering Threats

An application of pairs trading within the cryptocurrency market.

As we close out 2024, I’m truly grateful for your support and engagement throughout the past year. Wishing you a joyous holiday season and a New Year filled with health, happiness, and success.

This newsletter wraps up 2024 with a lighter and more entertaining tone. We’ll return to the usual content format in January.

Some investors are in favour of cryptocurrencies, while others remain skeptical. Regardless of opinions, it’s a fact: Bitcoin has just crossed the $100,000 USD mark. In this issue, I’ll discuss pairs trading in cryptocurrencies and recommend a movie for your watchlist.

Web-only posts Recap

Below is a summary of the web-only posts I published during last week

Impact of Zero DTE Options on the Market

Can We Predict a Market Correction?

Intraday and Overnight Volatility Clustering Effect

Skewness Risk Premium in the Options Market

Tactical Asset Allocation: From Simple to Advanced Strategies

Does Momentum Anomaly Really Exist?

Weekly Newsletters from 2024

Below is a summary of the weekly newsletters I sent out this year.

-The Role of Gold in Your Portfolio, Insights and Entertainment (7 min)

-Option Pricing Models and Strategies for Crude Oil Markets (8 min)

-When Correlations Break or Hold: Strategies for Effective Hedging and Trading (7 min)

-Hurst Exponent Applications: From Regime Analysis to Arbitrage (5 min)

-Examining Contango and Backwardation in VIX Futures (5 min)

-Making Use of Information Embedded in VIX Futures Term Structure (5 min)

-Rethinking Pairs Trading: Can Traditional Methods Still Deliver Returns? (4 min)

Pairs Trading in the Cryptocurrency Market

Pairs trading is a popular strategy in equity and commodity markets. While successful in equities, limited research exists on pair trading in the cryptocurrency market. This paper [1] examines the application of pairs trading within the cryptocurrency market.

Findings

-The study applied the Distance Method and Cointegration Method to cryptocurrency pairs using both daily and hourly data for formation and trading periods.

-Results showed that the frequency of the selection period (daily or hourly) did not significantly affect the pairs chosen.

-Pairs selected using the Cointegration Method generally outperformed those chosen with the Distance Method.

-Intraday trading proved more profitable than longer-term trading but lost its advantage when a stop-loss was implemented.

-The Cointegration Method performed better than the Distance Method, as the latter incurred higher trading costs due to an increased number of trades.

- Pairs trading outperformed the buy-and-hold long/short strategy in the cryptocurrency market. But it underperformed the traditional Buy and Hold.

Reference

[1] Lesa, Chiara and Hochreiter, Ronald, Cryptocurrency Pair Trading, SSRN, 2023

Crypto (2019) - The Movie

There aren’t too many feature films about cryptocurrencies. Crypto is one I recently watched. You can find another recommendation in the "Around the Web" section.

The movie is a crime thriller about Martin, a young Wall Street banker who gets demoted to his hometown. There, he uncovers a money laundering scheme involving a local art gallery and a dangerous Russian mafia. With the help of his tech-savvy crypto-miner friend Earl, Martin investigates the corruption, putting his life and his family's farm at risk.

Around the Web

Movies

- All-Time High (2023): A comedy about a con artist and a woman who becomes wealthy through her cryptocurrency investments (imdb)

- The Gambler (2014): based on Fyodor Dostoyevsky's novel of the same name. The story revolves around a young tutor who becomes entangled in the world of gambling and the financial troubles of his employer (imdb)

Articles

- The Hedge-Fund Trade of the Year: Betting on Argentina’s Chain-Saw-Wielding President (WSJ, paywall) Hedge funds and other money managers have piled into Argentine markets this year, betting President Javier Milei can overhaul a long-suffering economy. The trade has paid off handsomely.

Thank you for reading and let me know your thoughts in the comments below or by replying to this email! 

Disclaimer

This newsletter is not investment advice. It is provided solely for entertainment and educational purposes. Always consult a financial professional before making any investment decisions.

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