Why trade the ETH to BTC ratio?
In crypto, many traders benchmark the performance of any cryptoasset against BTC. As a result, one of the most actively traded markets is the ETH/BTC ratio. Trading the ratio allows traders to stay 100% exposed to crypto while taking advantage of changes in ETH and BTC price whenever prices are not as correlated with each other. Historically, the ETH/BTC ratio has oscillated frequently which traders have taken advantage to capture more return.
At a high level, if the ETH/BTC ratio falls below support, ETHBTCEMACO rebalances 100% ETH into BTC expecting BTC will continue outperforming ETH. Conversely, if the ETH/BTC ratio rises above resistance, the Set rebalances into ETH expecting ETH will continue to break out against BTC. View the chart below:
How does the Set perform?
Disclaimer: The content below is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. The content below is provided for educational purposes only, and not indicative of future performance. None of the following should be interpreted as investment advice. The tools used below follow a predefined set of parameters and aren’t actively managed by Set Labs Inc.
This chart below compares the hypothetical performance of holding the ETHBTCEMACO Set against holding 100% ETH or BTC over the last 3.5 years, assuming a slippage rate of 1% during each rebalance. The model shows the Set would have outperformed over the given historical time period and been subject to
the volatility of BTC and ETH prices.
The chart below illustrates the ETH that would have been accumulated using the ETHBTCEMACO Set vs a buy and hold strategy following the same assumptions above.
It’s important to keep in mind the the charts above are based on a number of assumptions and are only meant for illustrative purposes. As always, past performance is not indicative of future performance.
These charts use generated ETH hourly data sourced from Gemini. In production, the ETHBTCEMACO Set rebalances based on MakerDAO’s ETH price feed, which may output different results. If you’d like to play around with the data yourself (and tweak the parameters), feel free to fork the spreadsheet here.
What are the additional criteria needed to trigger a rebalance?
The rebalance criteria includes a minimum interval of 48 hours between rebalances and a confirmation period after the initial price-indicator crossover to reduce false positive signals. If the signal at the time of the initial crossover (e.g. ratio > moving average) matches the signal after 1 hours, then the Set will kickoff a rebalance. If the signal fails to match the signal after 4 hours, then the rebalance expires and another price-indicator crossover must occur. Learn more about Set rebalances here and our TWAP Rebalancing feature here.
View the ETH/BTC EMA Ratio Trading.