Inefficiency of the Cryptocurrency market and investment strategy · Bosen Technology CCR intelligent spot quantification robot

Despite the rapid development of the cryptocurrency market, which has attracted widespread attention from investors and regulatory agencies, its efficiency is still relatively low. Even cryptocurrencies with a large market cap may not fully reflect the existing information.

Reasons for Market Inefficiency

1. Low Liquidity: Compared to the TradFi market, the Cryptocurrency market has lower Liquidity, making it more susceptible to price Fluctuation and manipulation.

2. Regulatory Uncertainty: Inconsistent and constantly changing regulations in different regions have affected investor behavior and market stability.

3. Market dispersion: Due to the multitude of exchanges, prices and volume vary, leading to inefficient price discovery and Arbitrage opportunities.

4. Speculation: A large number of Cryptocurrency transactions are driven by speculation rather than fundamental value, resulting in market volatility and inefficiency.

Psychological Biases in Cryptocurrency Investing

The value of Cryptocurrency is more long-term based on future assumptions, so it is easily influenced by market sentiment and Liquidity. Empirical research shows that Cryptocurrency investment is closely related to speculation and psychological biases, with the main biases including:

1. Overconfidence Bias: Investors often overestimate their knowledge and forecasting abilities, leading to overtrading and risk-taking.

2. Herd Behavior: Investors tend to buy when the price is pumping and sell when the price is falling, leading to market bubbles and crashes.

3. Anchoring: Investors may focus on specific price points, ignoring broader market conditions.

4. Loss avoidance: The fear of losses may cause investors to hold losing investments for a long time or sell profitable investments prematurely.

Using quantitative trading to deal with inefficiency

Quantitative trading uses mathematical models and algorithms, machine learning, and statistical analysis to analyze price trends and momentum, and obtain long factor model trading strategies, which can effectively utilize market inefficiencies while mitigating psychological biases. The method is as follows:

1. Use market inefficiencies: Identify and take advantage of inefficiencies in the market through systematic analysis of price trends and momentum.

2. Overcome psychological barriers: Quantitative trading helps to avoid common biases such as chasing pumps and avoiding losses, relying on objective data to make investment strategies and execute, reducing the emotional impact of market Fluctuation on investment choices.

Adding Value to Investors

Quantitative trading provides several benefits to ordinary investors:

1. Consistency: Based on strategies to ensure consistent investment decisions, reducing the impact of human errors and emotional biases.

2. Risk Management: Predefined entry and exit points allow better Risk Management, combined with tracking Build a Position and tracking take profit, which enhances the stability of the overall investment portfolio.

3. Enhanced Returns: Quantitative trading strategies can generate higher returns by exploiting market inefficiencies and avoiding common psychological pitfalls.

Author: Gregory Mall, Bank Investment Solutions Manager at AMINA, CoinDesk; Translation: Quantitative Xiaosun from Boson Technology (bosen0722)