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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Survive and thrive amongst the professional traders using sophisticated cryptocurrency analysis and trading techniques The purpose of this book is to provide a concise yet comprehensive background of some effective methods for analyzing markets and creating fully automated AI-optimized trading systems. The book outlines some easy-to-replicate yet highly effective quant trading techniques that can be used for analyzing asset prices and then apply them to Bitcoin prices, showing how to generate actionable insights from data that can be used to create fully automated trading signals and systems. Big data analytics can be enhanced with artificial intelligence techniques. Back testing and optimization methods are presented with a special emphasis placed on the use of distributed genetic algorithms for parameter optimization. Finally, a case study of a fully automated trend-following trading strategy that leverages artificial intelligence is presented. Bitcoin AlphaBot(TM) combines human insight with AI-driven optimization to build profit table trend trading strategies.
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Seitenzahl: 184
Veröffentlichungsjahr: 2024
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Table of Contents
Cover
Table of Contents
Title Page
Copyright
Chapter 1: The Block of Genesis
An Immutable Ledger
Bitcoin Mining
The Blockchain Trilemma
Security
Scalability
Decentralization
From Web 2.0 to Web 3.0
Chapter 2: How Bitcoin Works
Blockchain Technology
Elliptic Curve Cryptography
Cryptocurrency Storage
Hot vs. Cold Storage Wallets
Sybil Attacks
Consensus Method Mechanism
Proof of Work
The Proof‐of‐Work Energy Consumption Debate
Proof of Stake
Proof of Work vs. Proof of Stake
We Hate Forking Hackers!
Staking Rewards
Merge Right to Avoid Danger Ahead!
Stable Coins and CBDCs
Chapter 3: Valuing Bitcoin
To Own Crypto Is to Understand Crypto
So How Much Could One Bitcoin Eventually Be Worth?
Hal Finney's Ambitious Bitcoin Valuation
Bitcoin as Digital Gold
Bitcoin's Production Value
The Bitcoin Hash Rate
Value as a Multiple of Mining Cost
Relative Valuation
Bitcoin Transaction Volume
Stock‐to‐Flow
Metcalf's Law
From Long‐term Predictions to Short‐term Trading
Chapter 4: Price Analysis for Prediction
The Saga of Investors
Are Market Prices Random?
Trend Following
Dow Theory
Contrarian Theory
Chapter 5: Artificial Intelligence for Price Prediction
Prediction vs. Classification
Technical Analysis
Financial Market Prediction Models
ChatGPT and Price Prediction
Chapter 6: Traditional Trading Methods
Moving Averages
RSI
MACD
ATR
Putting It All Together
Chapter 7: Advanced Trading Techniques
Relative Strength Analysis
Bitcoin vs. the Total Cryptocurrency Market Cap
Bitcoin Dominance
Bitcoin Price Performance versus Dominance over Time
Market Breadth—Metadata Analysis
Seasonality and the Bitcoin Halving
Chapter 8: Automating Signals and Strategies
Quantitative Trading Strategies
The Triple Exponential Moving Average (TEMA) System
Using the False Breakout Finder (FBF) Study to Find Potential Reversals
Monitoring the Market Sell‐Off with Range Volatility Spike Alerts
Programming Signals to Identify 52‐Week Relative Highs and Lows
Backtesting Big Data—the RSI Breadth Entry Trigger (rsiBET)
Converting Signals into Fully Automated Strategies
Chapter 9: Backtesting and Optimization
Quantitative Trading Strategies and Parameter Optimization
The Technical Trading Strategy
The Test Data
Selecting and Optimizing a Trading Strategy
Chapter 10: The Evolution of Artificial Intelligence
Infinite Monkey Theorem
Beyond Brute Force
Genetic Algorithms for Parameter Optimization
The Traveling Salesman Problem
Darwinian Natural Selection
Financial Applications of Genetic Algorithms
These Three Operators Are Then Used as Part of a Five‐Step Process
Empirical Results and Conclusions
Unique Considerations of Cryptocurrency Trading
Putting It All Together—Bitcoin AlphaBot™
Chapter 11: Case Study: Bitcoin AlphaBot™
Bitcoin AlphaBot™: Performance Analysis
Bitcoin AlphaBot™: Risk Management
Bitcoin AlphaBot™: Statistical Analysis
Sharpe vs. Sortino Ratio
Chapter 12: Digital Asset Market Outlook—July 2023
1) Sum‐of‐the‐parts Valuation too Cheap
2) Regulation Is around the Corner
3) The Halving Is Coming
4) Synthetic Short Covering Rally Imminent
5) Spot ETF to Drive Bitcoin Price to 100k+
References
Author Bio
Index
End User License Agreement
List of Illustrations
Chapter 1
Figure 1.1 The original Bitcoin whitepaper.
Figure 1.2 The genesis block's hexadecimal code.
Figure 1.3 FRED: total assets.
Figure 1.4 US Debt Clock.
Figure 1.5 Bitcoin was designed to remove financial institutions from transa...
Figure 1.6 Scalability, decentralization, and security.
Figure 1.7 Cryptocurrency transaction speeds compared to Visa & Paypal.
Figure 1.8 Reachable Bitcoin nodes.
Figure 1.9 Top 10 countries with reachable Bitcoin nodes.
Chapter 2
Figure 2.1 Elliptic curves.
Figure 2.2 Elliptic curve secp256k1.
Figure 2.3 Sybil resistance mechanism overview.
Figure 2.4 Different types of consensus mechanisms.
Figure 2.5 Annual energy use.
Figure 2.6 Proof‐of‐work vs. proof‐of‐stake: Pros, cons, and differences exp...
Figure 2.7 No staking vs. staking—the power of compounding.
Figure 2.8 Bitcoin vs. Ethereum.
Chapter 3
Figure 3.1 Previously unpublished emails of Satoshi Nakamoto present a new p...
Figure 3.2 Bitcoin's production value.
Figure 3.3 Image: Bitcoin hash rate vs. bitcoin price.
Figure 3.4 Miner profitability ratio.
Figure 3.5 Paul Tudor Jones store of value scoring as of August 4, 2020.
Exhibit 3.1 Asset class value and money as of February 2022.
Figure 3.6 Putting the world's money into perspective.
Figure 3.7 NVT ratio vs. Bitcoin price.
Figure 3.8 Stock to flow of Bitcoin, gold, and silver.
Figure 3.9 Bitcoin stock‐to‐flow ratio.
Figure 3.10 X (formerly Twitter) post by Vitalik Buterin.
Figure 3.11 Metcalf's law.
Figure 3.12 Crypto users vs. Internet users over same time; log scale.
Chapter 4
Figure 4.1 The saga of an investor.
Figure 4.2 Primary, secondary, and minor trends.
Figure 4.3 Accumulation and distribution.
Figure 4.4 Points of maximum financial risk and maximum financial opportunit...
Chapter 5
Figure 5.1 Performance of ChatGPT has deteriorated.
Figure 5.2 ChatGPT can't predict market price movements—for now.
Chapter 6
Figure 6.1 The Average True Range (ATR).
Figure 6.2 The S&P 500 with two different measures of ATR.
Figure 6.3 SPX index and chandelier exits.
Chapter 7
Figure 7.1 Price of Apple and Apple/SPX.
Figure 7.2 Crypto total market.
Figure 7.3 Total market value of Bitcoin.
Figure 7.4 Market cap of Bitcoin vs. the rest of the market (excluding BTC)....
Figure 7.5 Bitcoin vs. USD.
Figure 7.6 NYSE advance‐decline line.
Figure 7.7 Market breadth measures.
Figure 7.8 BTC/USD.
Chapter 8
Figure 8.1 The TEMA system.
Figure 8.2 TEMA and MACD.
Figure 8.3 TEMA for Euro Stoxx 600.
Figure 8.4 The False Breakout Finder.
Figure 8.5 S&P 500 with the RVS study.
Figure 8.6 52‐week relative highs and lows for Apple.
Figure 8.7 12‐month daily chart of the S&P 500 with rsiBET signals.
Figure 8.8 SPX index and ATR exits long.
Figure 8.9 The rsiBET long‐only strategy.
Figure 8.10 The rsiBEt long‐only strategy outperformed buy and hold and seve...
Chapter 9
Figure 9.1 Bloomberg Professional Terminal Trading Signals: Signal Definitio...
Figure 9.2 Bloomberg parameter optimization 3D surface graph.
Figure 9.3 The multi‐strategy optimization page in the Bloomberg Terminal.
Figure 9.4 Parameter optimization in the Bloomberg Terminal.
Figure 9.5 Backtesting in the Bloomberg Terminal.
Figure 9.6 Generating a 3D surface of the entire dataset in the Bloomberg Te...
Figure 9.7 3D surface in the Bloomberg Terminal.
Chapter 10
Figure 10.1 The infinite monkey theorem.
Figure 10.2 Bloomberg Professional Terminal backtesting and optimization res...
Figure 10.3 The traveling salesman problem.
Figure 10.4 Components of a genetic algorithm.
Figure 10.5 An example of a chromosome.
Figure 10.6 Crossovers and mutations.
Figure 10.7 Initial population of values.
Figure 10.8 Visualization of genetic algorithm convergence from iteration 60...
Figure 10.9 The Bitcoin trading system profit fitness function solved using ...
Chapter 11
Figure 11.1 Bitcoin AlphaBot
TM
Cumulative Returns vs. Bitcoin.
Figure 11.2 Performance of the Eurakehedge Crypto Hedge Fund Index and BTC....
Figure 11.3 Bitcoin Alphabot
TM
monthly total BTC returns.
Figure 11.4 Performance of the Bitcoin Alphabot
TM
for 2015–2023.
Figure 11.5 Bitcoin Alphabot
TM
cumulative returns vs. Bitcoin (Kraken) for 2...
Figure 11.6 Bitcoin Alphabot
TM
: performance analysis.
Figure 11.7 Bitcoin AlphaBot™ annual drawdown (%) vs. Bitcoin.
Figure 11.8 Bitcoin AlphaBot™: risk management.
Figure 11.9 Distribution of monthly returns.
Figure 11.10 Daily returns.
Figure 11.11 Bitcoin AlphaBot™: statistical analysis.
Figure 11.12 Rolling Sharpe.
Figure 11.13 Rolling Sortino.
Chapter 12
Figure 12.1 Crypto total market cap.
Figure 12.2 Market cap of Bitcoin, Ethereum, and Tether.
Figure 12.3 Crypto total market cap excluding BTC and ETH.
Figure 12.4 Bitcoin/USD.
Figure 12.5 FRED total assets.
Figure 12.6 Bitcoin/USD.
Guide
Cover
Table of Contents
Title Page
Copyright
Begin Reading
References
Author Bio
Index
End User License Agreement
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AI‐Powered Bitcoin Trading
Developing an Investment Strategy with Artificial Intelligence
Eoghan Leahy
Copyright © 2024 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.
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Chapter 1The Block of Genesis
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
—Satoshi Nakamoto
The birth of Bitcoin, like many religious movements, is a story for the ages. Bitcoin was founded by one mythical individual whose impact may last centuries. While there have been many false idols and pretenders to the crown, Bitcoin has remained the core of the cryptocurrency movement.
The exact birth date of Bitcoin can be disputed. The initial whitepaper was published on an online cryptographic forum on Halloween 2008. However, the timestamp of the first block is technically at 18:15:15 UTC on January 3, 2009, yet the Bitcoin network did not go live until January 8.
Satoshi Nakamoto is a pseudonym adopted by Bitcoin's creator, whose real identity has never been publicly revealed. There is something magical about a new disruptive financial ecosystem being launched by a single unknown operator who has never claimed the wealth they created.
Figure 1.1 The original Bitcoin whitepaper.
Many books have been written trying to decipher the real identity of Satoshi. Exhaustive analysis of the original emails between Satoshi and early adopters from the cryptocurrency community reveals some critical information.
Studying the email time zones, the writing styles, and comments made by counterparties offers clues. Early messages question whether Satoshi is even Japanese, as the name would suggest. Some have claimed to be Satoshi, and some still do, but to date, no irrefutable proof has been tabled.
While the “who” of Bitcoin is uncertain, the why is much more obvious. Encoded by Satoshi in the first‐ever Bitcoin transaction was the following message:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.
The above statement is a reference to the bailout of the global banking industry during the financial crisis of 2008/2009. The decision by governments to socialize the losses of private institutions marked the death of the fiat currency system. The profits of banks are private; however, the government covered their losses. In doing so, it passed the burden on to the public citizens through taxes and inflation caused by reckless money printing.
Figure 1.2 The genesis block's hexadecimal code.
Bitcoin supply is finite. This means that no person or entity can create more to benefit themselves at the expense of all that rely on the currency as a store of value. This is a key feature of Bitcoin relative to most other cryptocurrency projects.
This means that no government can print more Bitcoin to bail out corporations or fund wars. Essentially, the fiat money system allows politicians to write checks that the rest of the population needs to pay for, a problem that has now become so severe that for the debt to be repaid in full, it may be that future generations will have to pay the price for the financial recklessness of a few.
The chart of the total assets of the US Federal Reserve shows a parabolic rise, growing ten times from an initial base of under $1 trillion (USD) since 2013. The growth in the US national debt when compared to national GDP is reaching dangerous levels.
Paul Tudor Jones laid out the investment case for investors in the May 2020 BVI Macro Outlook. He discussed the inflationary pressures caused by the FED's money‐printing policies, stating that:
Figure 1.3 FRED: total assets.
Source: FRED / https://fred.stlouisfed.org/series/WALCL / Public Domain.
The current economic environment presents a compelling opportunity to explore how Bitcoin can be part of a resilient portfolio. As demand for stores of value grows during this regime of monetary inflation, Bitcoin may be well‐positioned given that it is a scarce digital asset. (Paul Tudor Jones, 2020)
The current levels of debt have passed the event horizon. There is no realistic way for this debt to be repaid. A new financial reset is likely, and Bitcoin may well be at the core of the eventual solution.
Bitcoin was not just created to control the destruction of value by central bank money printing. It attacks the core of the financial system. Money is created as debt, and debt incurs interest. So as soon as money is created and interest is owed, there is no longer enough money in the system to settle all debts. Furthermore, with charges placed on financial transactions, this pool of money shrinks further.
In the past, financial security was an important issue. Individuals needed a place to keep their money safe from theft, while international transactions were complicated and took considerable time.
Advances such as the Internet, artificial intelligence, faster computer processing speeds, cryptography, cybersecurity, and international commerce are now more effective and efficient at keeping money safe and transacting quickly and securely. Satoshi clearly highlights that the core purpose of Bitcoin is to remove the financial sector involvement from the money system using digital currencies built on blockchain technology that use mathematics for security rather than physical vaults.
Figure 1.4 US Debt Clock.
Source: https://www.usdebtclock.org/.
Figure 1.5 Bitcoin was designed to remove financial institutions from transactions.
The above graphic taken from the original Bitcoin whitepaper written by Satoshi unceremoniously cuts “trusted third parties” and “counterparties” out of the financial transaction process.
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party” (Satoshi, Bitcoin whitepaper).
It is clear to see why the traditional financial sector views Bitcoin and cryptocurrency as an existential threat to the current global payments system—because it is!
An Immutable Ledger
The blockchain ledger is like a Bible that can't be rewritten. In the past decade, the language of some versions of the Bible has changed from describing the interactions of Jesus with “lepers” to the more socially acceptable “people with rare skin conditions.” This increased social awareness, while likely in line with the sentiment of the original authors, is not the exact word‐for‐word writings of the original author.
What if there was a way to secure data so that it can never be changed in the future? That is exactly how an immutable ledger works. This provides the security authentication layer that underlies blockchain technology.
Bitcoin Mining
The first Bitcoin block was mined in January 2009. Like any sector, cryptocurrency has a high level of obfuscation (a word that often does what it means), as it is heavy with jargon taken from several different disciplines such as trading, finance, technology, gaming, and coding, to name a few. The sector has also created its own new set of terms to increase the “FUD” (fear, uncertainty, and doubt) that deters traders from “HODLing” (holding on for dear life).
The key is to stay humble and not let a lack of knowledge discourage your investment in the cryptocurrency space. Instead, dedicate yourself to learning. In fact, it is the early adopters who take the most risk early in projects that get rewarded the most. The future of cryptocurrency definitely favors the brave.
The earliest of those adopters that are constantly rewarded are the miners. So what is Bitcoin mining, and how does it work?
Bitcoin supply is fixed at 21 million Bitcoin—no more can ever be created. It is this finite supply that directly addresses the central bank currency debasement issue. Each Bitcoin is divisible by eight places after the decimal point (0.00000001 BTC), while the smallest unit is called a Satoshi, or sat for brevity.
There are several problems to be solved to launch and maintain a digital currency such as Bitcoin. How do you mint the currency over time in a controlled way that will not lead to liquidity issues that affect price stability? How do you incentivize others to help you maintain the immutable ledger and process transactions on the blockchain 24/7/365? How do you keep the network secure from hackers and bad operators?
The problems above are addressed by the intricate details involved in the mining process. Bitcoin uses a mining mechanism called proof of work, which requires miners to apply computer processing power to try and solve complex mathematical problems to earn newly minted Bitcoin. While mining to earn Bitcoin, they simultaneously settle Bitcoin transactions, communicate periodically with other miners to “validate” the transactions are correct, and add them to the immutable ledger of transactions on the Bitcoin blockchain.
Imagine a college lecturer in an auditorium with 100 students. Not the most tech‐savvy operator, they write lecture notes by hand, copying verbatim what is written by the professor on a chalkboard. Occasionally, the lecturer makes spelling errors, as do some of the students. One day the lecturer's notebook gets stolen! The sole centralized storage of all vital information is lost forever—what a disaster!
