Gate Research Institute: BTC hits new highs, Bollinger Band strategy annualized return reaches 66%

Introduction

This quantitative biweekly report (May 13 to May 26, 2025) focuses on the market performance of Bitcoin and Ethereum, systematically analyzes key indicators such as long-short ratio, contract holdings, and funding rate, and quantitatively interprets the overall market. This issue of the quantitative strategy module focuses on the practical application of the "Bollinger Bands reversal strategy" in the top 10 crypto projects by market capitalization (excluding stablecoins), and describes its strategy logic, signal determination mechanism and execution framework in detail. Through systematic parameter optimization and historical backtest verification, the strategy shows good stability in trend identification and risk control, and has clear execution discipline. Compared with simply holding BTC and ETH, this strategy has better advantages in terms of return and drawdown control, and provides a practical reference framework for quantitative trading.

Summary

• In the past two weeks, BTC broke through 110,000 USDT, reaching a historical high and maintaining an upward trend, while ETH has entered a consolidation phase.
• The contract positions for BTC and ETH have increased, with continuous inflow of funds; however, LSR has not synchronized with this strength, and market sentiment remains cautious.
• The funding rate of ETH fluctuates slightly more than that of BTC, with some local bearish pressure signals still present in the short term.
• The overall liquidation is mainly in long positions, reflecting a strong willingness of bulls to chase the rise during high-level fluctuations.
• The quantitative analysis uses the "Bollinger Bands Reversal Strategy". With optimal parameter selection, the annualized return of ETH exceeds 66%, outperforming the simple holding strategy.

Market Overview

In order to systematically present the funding behavior and trading structure changes in the current cryptocurrency market, this report approaches from five key dimensions: the price volatility of Bitcoin and Ethereum, long-short trading ratio (LSR), contract open interest amount, funding rates, and market liquidation data. These five indicators cover price trends, funding sentiment, and risk conditions, and can comprehensively reflect the current market's trading intensity and structural characteristics. The following will sequentially analyze the latest changes in each indicator since May 13:

1. Analysis of the Price Volatility of Bitcoin and Ethereum

According to CoinGecko data, since May 13, BTC has maintained an upward trend while ETH has been consolidating in a range. ETH was more active in the earlier phase, first climbing to 2,600 USDT, but then entered a phase of sideways consolidation. In contrast, BTC has steadily strengthened, with funds gradually flowing back in. On May 22, BTC officially broke through the key level of 110,000 USDT, reaching a new historical high for the first time in three months, peaking at 111,814 USDT, indicating a significant increase in its market attention and allocation enthusiasm.

Driven by multiple favorable factors, BTC's upward momentum is strong, with a cumulative increase of over 20% this year. Its total market capitalization has risen to $2.19 trillion, surpassing both Amazon ($2.13 trillion) and Google ($2.05 trillion), and becoming the fifth largest asset by market cap globally, only behind Apple. This round of price increase is mainly driven by two factors: first, the easing of trade tensions between China and the U.S., leading to a decline in market risk aversion; second, Moody's downgrade of the U.S. sovereign credit rating has prompted investors to seek alternative assets outside of the dollar, thereby enhancing the attractiveness of BTC allocation.

Image 1: On May 22, BTC officially broke through the key level of 110,000 USDT, reaching a new historical high of 111,814 USDT after three months.

In terms of volatility, since May 13, ETH's volatility has rapidly surged multiple times, with overall fluctuations exceeding those of BTC, indicating that its price changes are accompanied by stronger short-term market sentiment fluctuations, especially showing significant peaks during the mid-month phase. In contrast, BTC's volatility has been relatively stable, without significant abnormal fluctuations, reflecting a more resilient and structurally supported price trend.

As can be seen from the chart, the volatility of ETH surged to over 4% in mid-May, significantly higher than that of BTC during the same period, indicating that ETH experienced greater short-term capital speculation during the breakout. Overall, BTC's volatility distribution is relatively even, while ETH's fluctuations are concentrated at key points, highlighting its stronger sensitivity to external positive factors.

Figure 2: The volatility of BTC is relatively more even, while ETH's volatility has experienced several sharp increases.

Overall, BTC has performed strongly in this round of market conditions, not only reaching a historic high but also showing a steady overall trend with a relatively even distribution of volatility, reflecting its characteristics as a safe-haven asset and a store of value in the current market environment. In contrast, while ETH briefly surged to 2,600 USDT earlier, its overall increase has been limited, with subsequent performance being weak and volatility rising sharply, indicating that although it reacts to external positive news, it struggles to sustain a rally due to insufficient capital drive. The divergence in the performance of the two assets is significant, reflecting a reordering of asset allocation in the market. In the short term, the price momentum and volatility trend of BTC can be seen as key indicators for assessing market risk appetite and liquidity direction, while the performance of ETH still requires observation of whether its fundamentals can further catalyze growth.

2. Analysis of the Long-Short Ratio (LSR) of Bitcoin and Ethereum Trading Volume

The Long/Short Taker Size Ratio (LSR) is a key indicator that measures the trading volume of long versus short orders in the market, often used to assess market sentiment and trend strength. When LSR is greater than 1, it indicates that the volume of active buying (taking long positions) exceeds that of active selling (taking short positions), suggesting that the market is more inclined towards going long, with a bullish sentiment.

According to Coinglass data, BTC prices have risen steadily since May 13 and hit an all-time high intraday on May 22. However, the LSR did not rise in tandem, and remained oscillating around 1 or even falling below 1 several times, indicating that there is still a significant short position in the market despite the continuous record highs of the price. Especially after May 18, the price of BTC continued to climb, but LSR once fell back below 0.95, reflecting that some funds tend to hedge or deploy short positions at high levels, and the market sentiment is cautious.

The ETH segment shows more volatile LSR changes. Although its price briefly rose to 2,600 USDT, the LSR never stabilized above 1, instead exhibiting intense fluctuations. This indicates that ETH did not gain sustained bullish dominance during the upward movement, and the bearish forces in the market remain strong, with a thick sentiment of short-term speculation and a lack of clear trend consensus.

Overall, although the BTC price has shown an upward trend in the past two weeks, the LSR indicator has not strengthened in tandem, instead reflecting market doubts about the sustainability of high positions. Investors are maintaining a wait-and-see and hedging attitude during the rally, indicating that this round of increase is more driven by short-term sentiment and news, and the structural bullish support still needs to be validated. In the short term, the continued rise of the LSR will be a key indicator for determining whether the market can sustain its upward momentum.

Figure 3: BTC price is steadily rising, but LSR has not synchronized with the increase, remaining around 1 and even dropping below 1 multiple times during this period.

Figure 4: The intraday price of ETH once rose to 2,600 USDT, but LSR showed overall volatility, indicating a clear divergence between bulls and bears in the market, lacking sustained bullish dominance.

3. Analysis of Contract Position Amount

According to Coinglass data, since May 13, the amount of BTC and ETH contract holdings has continued to grow, indicating that the market trading heat and leverage participation have increased simultaneously. BTC's contract holdings have risen steadily from about $70 billion and topped $80 billion around May 20, and although they have fallen slightly since then, they have remained relatively high overall, reflecting the continuation of the inflow momentum in the process of higher prices. In contrast, ETH's contract holdings have been relatively stable, rising from about $27 billion to around $32 billion, with a small range of fluctuations, indicating that the pace of capital distribution in the ETH contract market is relatively modest.

Overall, although the holding amounts of BTC and ETH have risen in sync, and market trading activity has increased, the long-short ratio (LSR) has not strengthened correspondingly. This reflects that while funds continue to enter the market, the market sentiment remains cautious. The price increase is still accompanied by significant divergences and hedging operations, and the structural bullish trend still needs further confirmation. [6]

Figure 5: The amount of BTC contract positions is rising strongly, while the amount of ETH contract positions remains relatively stable.

4. Funding Rate

The funding rates for BTC and ETH have generally fluctuated around 0%, frequently switching between positive and negative, indicating that the market's long and short forces are still relatively balanced, with sentiment not clearly leaning in one direction. Although prices and positions have risen simultaneously during this period, the funding rates have not significantly increased, mostly operating within the range of 0% to 0.01%.

This trend reflects that although there are some bullish expectations in the current market, leverage positions are still relatively restrained, with no large-scale chasing of longs. Overall, the funding sentiment is neutral to slightly bullish. The volatility of ETH's rates is slightly larger than that of BTC, and there are still local bearish pressure signals in the short term, indicating that the market is maintaining a cautious and wait-and-see attitude before key price levels. Overall, the funding rate trend confirms that the current market is still in a moderately optimistic bullish phase and has not yet entered an overheated state.

Figure 6: The funding rates for BTC and ETH have remained fluctuating slightly around 0%, indicating that the forces of bulls and bears in the market are still relatively balanced.

5. Cryptocurrency Contract Liquidation Chart

According to Coinglass data, the total liquidation of long orders in the crypto market in the past two weeks reached $2.697 billion, significantly higher than the $1.76 billion of short orders, showing that in the process of high-level shocks, bulls have a strong willingness to chase up, but they are also more likely to encounter forced liquidation due to reverse pullbacks. In contrast, the market has been dominated by short liquidation in the early stage to an increase in long liquidation recently, reflecting that the current market has entered a stage of high-level consolidation, chasing high risk and rising, and funds are more sensitive to short-term fluctuations. The contract market is still in an environment of high leverage and high risk, and the operation should pay attention to the potential liquidation pressure of position leverage and volatility.

Overall, although the contract holdings of BTC and ETH have continued to rise since May 13, indicating active market trading and increased leverage, which temporarily formed a bullish advantage during key price level breakthroughs, LSR has not strengthened in tandem, reflecting that although funds have entered the market, the market sentiment remains cautious. Liquidation data also shows that even in an upward trend, long positions frequently encounter liquidation at local highs, especially the day after BTC set a new high on May 23, when the market fluctuations intensified and long positions were obviously under pressure. This phenomenon highlights that while there is capital driving the current market, it is still in a state of high volatility, high leverage, and hedging coexisting, with the structural bullish trend yet to be further confirmed.

Figure 7: The total amount of long position liquidations reached 2.697 billion USD, significantly higher than the short position liquidations of 1.76 billion USD, indicating a strong willingness of bulls to chase prices higher during the high-level volatility.

Quantitative Analysis - Bollinger Band Reversal Strategy

(Disclaimer: All predictions in this article are based on historical data and market trends, intended for reference only and should not be considered as investment advice or a guarantee of future market movements. Investors should fully consider risks and make cautious decisions when making related investments.)

1. Strategy Overview

The "Bollinger Bands Reversal Strategy" is a reversal strategy that combines volatility assessment with trend structure monitoring. The strategy centers around the Bollinger Bands as the core indicator. When the price breaks below the lower band of the Bollinger Bands, it is considered a signal that the market is temporarily oversold and may rebound, triggering a long position entry; when the price crosses above the upper band of the Bollinger Bands or reaches pre-set profit-taking and stop-loss thresholds, it is seen as the end of a market phase, prompting an exit operation.

In order to enhance the stability of strategies and the basis for judgment, the system also synchronously references multiple simple and exponential moving averages (SMA/EMA) to grasp the long-term trend direction of the market and combines a fixed ratio take-profit and stop-loss mechanism to effectively control risks and lock in profits. The overall strategy is applicable in oscillating ranges or high-volatility environments, capturing short-term reversal opportunities, while possessing a certain degree of fault tolerance and trading discipline.

2. Core Parameter Settings

3. Strategy Logic and Operation Mechanism

Entry Conditions

• In a no position status, when the price breaks down below the lower Bollinger Band, it is considered oversold, and a long position should be established.

Entry Conditions:

• Stop Loss: If the price falls back to the purchase price * (1 - stop_loss_percent), a forced stop loss will be triggered.
• Take Profit: If the price rises to the buy price * (1 + take_profit_percent), trigger the take profit and close the position.
• Bollinger Upper Band Exit: If the price breaks through the upper Bollinger Band, it is determined as a short-term market returning to normal, triggering a closing signal.

Practical Example Diagram

• Trading signal triggered

The image below shows the ETH/USDT 1-hour candlestick chart at the most recent entry point triggered by the strategy on May 25, 2025. It is evident that when the price broke below the lower Bollinger Band, it quickly rebounded, accompanied by an increase in trading volume and a MACD golden cross. The strategy entered a buy position at this location, successfully capturing the starting point of the short-term rebound, which aligns with the entry logic of the Bollinger Band strategy.

Figure 8: Schematic of the actual entry position when the strategy conditions for ETH/USDT are triggered (May 25, 2025)

• Trading Actions and Results ETH reached the upper Bollinger Band on the morning of May 26, and the system executed the exit operation according to the strategy settings, successfully locking in the profits from this short-term rebound. Although the market then continued to rise slightly, this exit adhered to the disciplined exit logic of the Bollinger Bands, demonstrating stable risk control execution. If future strategies incorporate trailing stop-loss or trend-following mechanisms, it may further enhance performance during strong market conditions.

Figure 9: ETH/USDT Strategy Exit Position Schematic (May 26, 2025)

Through the above practical examples, we visually present the logic of entering and exiting the market and the dynamic take-profit and stop-loss mechanism of the strategy when the price touches the boundary of the Bollinger Bands. The strategy uses the price to break through the lower Bollinger band for a low layout, and combines the breakout of the upper Bollinger band as an exit signal to effectively capture the short-term rebound opportunity. While controlling the drawdown risk, the main profit range was successfully locked. This case not only verifies the practicality and discipline execution of the Bollinger Bands strategy, but also reflects its stable performance and risk control ability in a highly volatile market, which provides an empirical basis for subsequent optimization parameters and extended applications.

4. Practical Application Examples

Parameter Backtest Settings To find the best parameter combination, we conduct a systematic grid search over the following range:

• bb_period: 5 to 25 (step size of 1)
• bb_dev: 1 to 5 (step size of 1)
• stop_loss_percent : 1% to 2% (step size of 0.5%)
• take_profit_percent: 10% to 16% (step size of 5%)

Taking the top 10 crypto projects by market capitalization (excluding stablecoins) as an example, this paper backtests the 1-hour K-line data from January to May 2025, and the system tests a total of 630 parameter combinations, and selects five groups with the best annualized return performance. Evaluation criteria include annualized return, Sharpe value, maximum drawdown, and ROMAD (return to maximum drawdown ratio) to provide a comprehensive measure of a strategy's stability and risk-adjusted performance across different market conditions.

Figure 10: Performance Comparison Table of Five Optimal Strategies

Strategy Logic Explanation When the program detects that the price falls below the lower band of the Bollinger Bands, it is considered a short-term oversold signal, immediately triggering a buy operation. This structure aims to capture rebound opportunities after the price deviates from the mean, and combines the upper band of the Bollinger Bands as a dynamic profit-taking reference to enhance the effectiveness of profit locking. If the price rebounds to the upper band or reaches the preset stop-loss or take-profit ratio, the system will automatically execute an exit action to balance risk and reward.

Taking ETH as an example, the settings used in this strategy are as follows:

• bb_period= 23 (Bollinger Bands calculation period, controls the bandwidth reaction speed)
• bb_dev = 2 (Bollinger Bands standard deviation multiplier, determines the sensitivity of the upper and lower bands)
• stop_loss_percent = 1%
• take_profit_percent = 15%

This logic combines statistical reversal signals with a fixed ratio risk control mechanism, making it suitable for use in markets with obvious oscillation or pullback structures.

Performance and Results Analysis The backtesting period is from January 1 to May 26, 2025, during which the strategy has generally performed robustly. The chart shows the cumulative return trend of the five best-performing parameter combinations at the 1-hour level, and most of them are significantly better than the Buy and Hold strategies of BTC and ETH. Among them, the rewards of ETH, ADA and APT strategy portfolios have risen steadily, with the highest cumulative return exceeding 30% and an annualized return of over 66%, while the spot performance of BTC and ETH is in the volatile or negative range respectively, especially the ETH drawdown is close to -50%.

Overall, these five sets of strategies demonstrate good capital management and risk control capabilities during market fluctuations and trend reversal stages, effectively avoiding medium- to long-term drawdowns and capturing swing opportunities. The current strategy combination strikes a good balance between reward and stability, possessing practical deployment value. In the future, dynamic Bollinger parameters, volume filtering, or volatility screening logic can be further introduced to enhance the strategy's adaptability in different market conditions and expand it into a multi-currency and multi-timeframe trading framework.

Figure 11: Comparison of the cumulative return rates of the five optimal parameter strategies with the holding strategies of BTC and ETH over the past year.

5. Trading Strategy Summary

The "Bollinger Bands Reversal Strategy" enters the market when the price touches the lower Bollinger Band and exits when it reaches the upper band, combined with fixed ratio take profit and stop loss, capturing short-term rebound trends, and is well-suited for the early stages of oscillation or reversal.

The backtest focuses on the top ten projects by cryptocurrency market capitalization (excluding stablecoins), using 1-hour K-line data and testing 630 sets of parameter combinations. The results show that the ETH strategy combination (bb_period=23, bb_dev=2.0, take_profit_percent=10%, stop_loss_percent=1%) performed the best, with an annualized return rate of 66%, significantly better than the Buy and Hold strategy for ETH during the same period (-32%).

It is worth noting that the win rate of this set of parameters is only 35%, with a failure rate as high as 65%. However, since the magnitude of profit each time is far greater than the loss, the overall return is better than other high win rate strategies, demonstrating that the rate of return and win rate do not show a positive correlation. The key to the strategy lies in the reasonable design of the profit and loss ratio.

The parameter distribution shows that a mid-term Bollinger cycle, with a wider channel and a combination of high take profit and low stop loss, can effectively amplify swing profits and reduce the risk of premature exits. The overall strategy has a clear entry and exit logic, with stable risk control, making it suitable for expansion into multi-currency and multi-cycle trading frameworks. In the future, it can be further enhanced by integrating trading volume, trailing stop-loss, and trend recognition mechanisms to improve the stability and practical performance of the strategy.

Summary

From May 13 to May 26, 2025, BTC performed strongly, breaking through 110,000 USDT and setting a new historical high, reflecting the market's recognition of its safe-haven and value storage properties. In contrast, ETH entered a consolidation phase after a brief surge, with its volatility significantly higher than that of BTC, indicating that it is more influenced by short-term sentiment and news. Although the contract positions for BTC and ETH continue to rise, showing increased trading activity, the long-short ratio (LSR) has not strengthened in sync, suggesting that the market remains cautious and hedging at high levels. Additionally, the amount of liquidations for long positions is significantly higher than for short positions, indicating that while the current market is driven by capital, the risks of chasing prices for bulls are increasing, and the overall market is still in a phase of high leverage, high volatility, and structural divergence.

The quantitative analysis adopts the practicability and stability of the "Bollinger Bands reversal strategy" in shocks and reversal markets, and is suitable for highly volatile assets such as ETH. The strategy uses the lower band of the Bollinger Bands as an over-falling entry signal, and combines the upper band with a fixed proportion of take-profit and stop-loss mechanisms to effectively balance rewards and risks. In the backtest from January to May 2025, the optimal combination of parameters achieved an annualized return of 66% on ETH, which is significantly better than the Buy and Hold strategy. The performance of the parameters shows that the medium-term Bollinger cycle, loose boundaries and high stop-interest ratios can help improve the effectiveness of the strategy. Overall, the strategy is well-defined and highly disciplined, suitable for execution in highly volatile markets, and has the potential for further optimization and multi-asset expansion. However, in practice, it may still be affected by factors such as market shocks, extreme market conditions or signal failure, so it is recommended to combine other quantitative factors and risk control mechanisms to improve the stability and adaptability of the strategy, and make rational judgments and respond cautiously.
Reference Material:

1. CoinGecko, https://www.coingecko.com/
2. Gate, https://www.gate.com/trade/BTC_USDT
3. Gate, https://www.gate.com/trade/ETH_USDT
4. Coinglass, https://www.coinglass.com/global-assets
5. Coinglass, https://www.coinglass.com/LongShortRatio
6. Coinglass, https://www.coinglass.com/BitcoinOpenInterest?utm_source=chatgpt.com
7. Gate, https://www.gate.com/futures_market_info/BTC_USD/capital_rate_history
8. Gate, https://www.gate.com/futures/introduction/funding-rate-history?from=USDT-M&contract=ETH_USDT
9. Coinglass, https://www.coinglass.com/pro/futures/Liquidations

Disclaimer Investing in the cryptocurrency market involves high risks. It is recommended that users conduct independent research and fully understand the nature of the assets and products being purchased before making any investment decisions. Gate does not accept any responsibility for losses or damages resulting from such investment decisions.