5 million lines of data analyze the three-year bull market of Crypto
Data will allow us to understand the market from a more objective and higher-dimensional perspective.Author: LUCIDA
Original Title: 《500 Million Lines of Data Review of the Three-Year Bull Market in Crypto @LUCIDA》
Since 2020, the entire cryptocurrency market has experienced a massive bull market, which has led to significant price increases for many assets in various sectors and hot spots, including those that have increased by a hundredfold or even a thousandfold.
LUCIDA is a quantitative hedge fund in the Crypto field. As the market slowly turns bearish, we will conduct a comprehensive review of this entire bull market, discovering market patterns through the mining of vast amounts of data and learning from history. Additionally, LUCIDA will publish a series of investment research articles, and this article is the first in the series: "Review of the Three-Year Bull Market with 5 Million Lines of Data."
Data Acquisition and Preprocessing
The first step is to acquire data. We obtained data for all cryptocurrencies ranked in the top 3000 by market capitalization from CoinMarketCap, totaling over 5 million lines.
Each cryptocurrency has seven columns: Date, Open, High, Low, Close, Volume, and MarketCap.
For subsequent analysis, we performed preprocessing on the data:
- Modified outliers and filled in missing values
- Removed stablecoin assets
- Removed pegged assets such as wBTC and renBTC
- Removed assets that were significantly spiked due to poor market depth
- Removed cryptocurrencies with too small market capitalization and poor liquidity (most of which are outside the top 1000 by market cap)
- NFT assets were not included in the statistics
In the end, the number of cryptocurrencies that met our statistical criteria was 952.
Highest Increase of 960,000 Times
We used the period from January 1, 2020, to May 24, 2022, as the statistical period and found the top 100 cryptocurrencies with the highest increases, as follows:
The highest increase was Shiba Inu, with an increase of 96,482,030.32% (I counted the magnitude for you, that's 960,000 times), currently ranked 19th by market cap.
A Bull Market Doesn't Mean You Can Just Buy Anything and Beat the Market
Next, we calculated the median of the maximum increase, which is 2002.23%.
If we take BTC as the index, then the β return is 1259.27%. Compared to the median α return of 2002.23%, the β return does not lag too far behind the α return.
Therefore, the truth may not be as everyone thinks: "In a bull market, you can just buy anything and beat the market." From the data, it shows that when purchasing small-cap assets, careful selection and timing are necessary. If you do not choose the right coins and timing, your returns may not even be better than just holding BTC.
Not Timing Small-Cap Purchases? Then Watch BTC While Buying Small Caps!
Next, we will calculate the "start time," "end time," and "duration" of the maximum increase for all cryptocurrencies. This essentially discusses the timing issue of purchasing small-cap assets: "When to buy the dip?" and "When to sell at the peak?"
The above chart shows the frequency of "start times of maximum increases," with the x-axis representing time and the y-axis representing frequency. The bars indicate when the cryptocurrencies hit their lows. The low points are concentrated in March 2020 and July 2021, specifically after the "312" and "519" incidents.
The second chart shows the frequency of "end times of maximum increases," with the x-axis representing time and the y-axis representing frequency. The bars indicate when the cryptocurrencies peaked. The majority of peak times are concentrated in April 2021 and November 2021, which is basically consistent with Bitcoin's peak time.
Therefore, statistically speaking, small-cap assets experiencing independent trends is rare; in fact, it still depends on Bitcoin's performance. If you do not have a good grasp of the trends of small-cap assets, it is better to watch Bitcoin while buying small caps.
Time is the Friend of High Returns
Next, we will analyze the frequency of time intervals. The time interval is calculated as the "time when the highest price occurs" minus the "time when the lowest price occurs," and then we will count the frequency.
We found that the peaks in the histogram are concentrated within 20 days and around 400 days. This means that the situations when cryptocurrencies peak can be simply divided into two categories:
- The peak occurs immediately after opening
- The peak occurs after one year
If you want to enjoy high returns in a bull market, holding long-term (over 1 year) may be the most correct choice.
Even in a Bull Market, Be Prepared for a "Halving" in Value, or You Might Be Stuck for a Year
After calculating the returns, we will now calculate the risks.
First, we calculate the maximum drawdown. Here, the maximum drawdown refers to the "maximum drawdown that occurs during the period of maximum increase," or the "maximum drawdown during the bull market," not the maximum drawdown during a bear market.
The average and median of the maximum drawdown are 50.63% and 57.02%, respectively. This means that even in a bull market, you need to be mentally prepared for a halving in value and endure significant unrealized losses.
Additionally, the median maximum drawdown lasts for 31 days, with an average of 43 days, and the longest maximum drawdown lasted for 322 days. This means that in a bull market, you will typically be stuck for over a month, and it is even possible to be stuck for a year.
When Bitcoin is Consolidating at High Levels or Stagnating, It is a Good Opportunity to Buy Low and Sell High with Small Caps
Next, we will analyze when maximum drawdowns typically occur.
The following chart shows the frequency of the start times of maximum drawdowns, with two obvious peaks concentrated in August 2020 and February to April 2021.
In August 2020 and February to April 2021, during these periods, Bitcoin (the index) exhibited high-level consolidation or stagnation. This means that in a bull market, when Bitcoin (the index) is in a state of high-level consolidation or stagnation, small-cap assets usually experience significant drawdowns, which can be attributed to the "high elasticity" characteristic of small-cap assets.
New Highs After Large Fluctuations at High Levels, or a Last Glimmer Before the Market Turns Bearish, Run Fast
Maximum drawdown does not mean the end of the bull market. As mentioned earlier, the first end of the bull market occurred in April 2021, which is two months later than the maximum drawdowns that occurred in February 2021.
Therefore, the significant drop of small-cap assets at high levels is not coincidental; it is usually a sign before peaking. Even if the price reaches new highs, it is mostly a trap, not an opportunity.
Summary
Through data, we have summarized and analyzed the past three years of this bull market from the perspectives of returns and risks. From the data, we have extracted some viewpoints, some of which align with our previous understanding, while others have challenged our perceptions or provided new insights into the market. Data allows us to understand the market from a more objective and higher-dimensional perspective.
This article is relatively general. In addition to this article, we will write more investment research reports around this bull market from the perspectives of "secondary market investment" and "data," including but not limited to:
- Analysis of different sectors (infrastructure sector, NFT sector, DEFI sector, SOCIALFI sector, GAMEFI sector, DAO sector, and exploration of sector rotation patterns)
- Analysis of different ecosystems (ETH ecosystem, POLKADOT ecosystem, SOLANA ecosystem, etc.)
- Small-cap strategy analysis (multi-factor coin selection, timing strategies, enhancement strategies, hedging strategies)
- Performance analysis of investment institutions
