When Bitcoin Sings, Our Strategy Stings: A Sharp Contrast in Market Behaviors
1. INTRODUCTION
At Oxido Solutions, we’ve developed the Trend Classification System (TCS) to categorize the price action of any asset and evaluate how different trading strategies perform under various market conditions. This framework helps uncover where strategies excel, where they struggle, and how they can be optimized for maximum efficiency.
In this blog, we apply TCS to Bitcoin, comparing its performance across different market scenarios with our most widely used trading strategy. This low-risk, multi-strategy approach is designed for Bitcoin Perpetual Futures on Binance Futures, one of the leading platforms for crypto derivatives. These futures contracts, which don’t have an expiration date, allow traders to speculate on Bitcoin’s price movements without directly owning the asset.
What we’ve found is that our strategy frequently moves in contrast to Bitcoin. Often when “Bitcoin sings,” our strategy “stings”. But when Bitcoin faces challenges, the strategy tends to steps up, delivering stability and returns. This analysis goes beyond broad patterns, diving into the specifics of why these differences occur and what it means for users of our strategy.
Here’s what we’ll cover:
- The data sources and methods that powered this analysis
- Bitcoin’s most and least common market conditions
- Where our strategy performs well—and where it struggles
- A head-to-head comparison of performance in different environments
- Insights for navigating challenging scenarios
- Practical takeaways for both traders and strategy users
- Why our strategy might be a good hedge against Bitcoin.
- Action steps we’re taking to refine the strategy
This blog will give you a detailed understanding of how the strategy behaves under different market conditions and help you identify where it delivers the most value. Whether you’re a potential user evaluating the strategy or an existing client seeking deeper insights, this breakdown will provide valuable context for making informed decisions. Let’s dive in.
2. OUR DATA
To understand how our strategy measures up against Bitcoin, we started with solid, reliable data. Our goal was to capture the nuances of Bitcoin’s market behavior and evaluate how well the strategy performs in different scenarios. For this analysis, we relied on two key datasets that form the backbone of our findings.
2.1. Bitcoin Price Data
The first dataset comes from historical daily price data for Bitcoin, sourced from Yahoo Finance. Covering the period from January 2020 to October 2024, this four-year window was chosen because it spans a wide variety of market conditions. It includes Bitcoin’s explosive bull run in 2021, the sharp declines of the 2022 bear market, and the gradual recovery and stabilization that followed.
This timeframe tells a bigger story than just price movements. It reflects Bitcoin’s evolution as a financial asset, shaped by events like regulatory decisions, growing institutional adoption, and shifting global economic trends. By studying this period, we can see how Bitcoin reacts to extremes—whether it’s sudden volatility, sustained trends, or periods of relative calm.
2.2. Strategy Performance Data
The second dataset tracks the daily profit-and-loss (PNL) performance of our low-risk, multi-strategy algorithm, backtested on Binance Futures for Bitcoin Perpetual Futures. This data is especially valuable because it shows how the strategy performs in the same conditions that Bitcoin experienced. Unlike traditional spot trading, perpetual futures allow traders to speculate on price movements without holding the asset itself, adding an extra layer of flexibility.
This strategy focuses on consistent returns and prioritizes managing risk, making it a go-to choice for many users. By comparing its performance to Bitcoin’s, we can identify patterns: where the strategy outperforms, where it struggles, and where adjustments might help it perform even better.
2.3. The Value of Combining These Datasets
Analyzing these two datasets together gives us deeper insights than either could provide alone. Bitcoin’s price movements offer a snapshot of market behavior, while the strategy’s PNL data reveals how a specific trading approach reacts to those movements. Together, they help us answer critical questions:
- How does the strategy handle highly volatile markets compared to stable ones?
- In what situations does the strategy outperform Bitcoin, and what drives that outperformance?
- What challenges does the strategy face, and how can we address them?
- This dual approach transforms raw numbers into actionable insights, uncovering patterns and opportunities that might otherwise go unnoticed.
2.4. Creating a Balanced Foundation
The combination of Bitcoin’s historical data and the strategy’s backtested results creates a balanced foundation for evaluation with TCS. It’s not just about whether the strategy beats Bitcoin in specific conditions—it’s about understanding why. Does the strategy perform well when Bitcoin is volatile? How does it handle uncertainty? And can it still add value in calmer markets?
By comparing these datasets side by side, we can highlight the strategy’s strengths, pinpoint its weaknesses, and build a clearer picture of how it behaves in various market environments. This analysis lays the groundwork for what comes next: breaking down Bitcoin’s market conditions and exploring how they shape opportunities for both Bitcoin and our strategy.
3. BITCOIN’S MOST AND LEAST FREQUENT MARKET CONDITIONS
Understanding Bitcoin’s price behavior is crucial when evaluating any trading strategy. Each price movement reflects a mix of market influences, ranging from macroeconomic trends to technical triggers. By categorizing these movements using our Trend Classification System (TCS), we’ve broken down Bitcoin’s behavior into specific conditions. This analysis sheds light on the types of environments Bitcoin operates in and how strategies respond to those scenarios.
From January 2020 to October 2024, we studied 1,916 individual Bitcoin market movements, capturing a wide range of trends, volatility patterns, and price dynamics. The results reveal which conditions are common, which are rare, and how each shapes Bitcoin’s behavior. This chapter unpacks these findings and explores their implications for trading strategies.
3.1. Main Market Categories: Semi-Regular, Regular, and Irregular
Bitcoin’s market conditions can be grouped into three main categories: semi-regular, regular, and irregular markets. Each category reflects unique patterns, from steady trends to unpredictable price swings. Understanding their distribution provides a clearer view of Bitcoin’s trading environment and helps highlight opportunities for strategies designed to navigate these conditions.
The table below highlights how Bitcoin’s price action is categorized into regular, semi-regular, and irregular movements, along with the percentage differences between these categories. This breakdown provides a clear picture of the frequency of each type of movement and how they compare to one another.
| Main | Count | Percentage |
|---|---|---|
| Irregular | 857 | 44.7 |
| Semi-Regular | 714 | 37.3 |
| Regular | 345 | 18 |
Our analysis revealed several critical insights into the nature of Bitcoin’s market movements. Here are our key findings:
A. Irregular Markets
Irregular markets are the most frequent, accounting for 44.7% of Bitcoin’s activity. These are the unpredictable, high-volatility conditions often driven by external events like regulatory announcements, macroeconomic disruptions, or liquidity crises. Price movements in these markets can be sharp and dramatic, creating both risks and opportunities. While they are less frequent than semi-regular and regular markets, their impact on overall performance can be significant, requiring strong risk management tools.
B. Semi-Regular Markets
Semi-regular conditions account for 37.3% of Bitcoin’s price movements. These markets feature moderate fluctuations within recognizable patterns, such as periods of consolidation or gradual growth. While they are not entirely stable, they exhibit enough structure to be predictable for trading strategies. These conditions reflect Bitcoin’s maturing status as an asset, where volatility coexists with periods of balance.
C. Regular Markets
Regular markets represent just 18% of Bitcoin’s movements and are defined by clear, sustained trends—whether bullish or bearish. In these scenarios, price moves in a relatively consistent direction, offering fertile ground for strategies that thrive on momentum. However, their predictability can pose challenges for strategies that rely on reacting to sudden changes or volatility.
D. Dominance
The dominance of irregular and semi-regular markets—accounting for over 82% of Bitcoin’s price movements—highlights its dynamic nature. Most of Bitcoin’s behavior is defined by sharp volatility or moderate, fluctuating patterns. For traders, this means strategies need to handle frequent price swings while also taking advantage of predictable patterns when they emerge.
Regular markets, while making up just 18% of activity, still play an important role. These conditions create opportunities for trend-following strategies that rely on consistent, directional movements. However, the lower frequency of regular markets underscores the need for trading systems that don’t depend too heavily on stable, predictable trends to perform.
This data reinforces the importance of flexibility and strong risk management when trading Bitcoin. A well-rounded strategy should be able to navigate the uncertainty and rapid changes of volatile conditions while still maintaining consistent performance in more structured environments. This balanced approach is crucial for optimizing results across Bitcoin’s varied market scenarios.
3.2. Diving Deeper: Market Subcategories
To gain a more detailed view, we divided Bitcoin’s price movements into ten subcategories, each reflecting specific behaviors and dynamics. This breakdown helps pinpoint the most common scenarios, where strategies should focus, and the rare conditions that demand specialized tools.
| Main | Count | Percentage |
|---|---|---|
| Zig-Zag Movement | 375 | 19.6 |
| High Volatility Choppy | 325 | 17.0 |
| Range-Bound Market | 264 | 13.8 |
| Consolidation | 255 | 13.3 |
| Mixed Volatility | 195 | 10.2 |
| Weak Trend | 171 | 8.9 |
| Whipsaw Move | 150 | 7.8 |
| Strong Trend | 105 | 5.5 |
| Flag and Pennant Pattern | 69 | 3.6 |
| Extreme Move | 7 | 0.4 |
A. Most Frequent Subcategories
- Zig-Zag Movements dominate with 19.6% of all activity. These conditions involve frequent reversals, creating opportunities for traders who can time entries and exits with precision.
- High Volatility Choppy Conditions account for 17%, marked by rapid and unpredictable swings. These markets are challenging but rewarding for strategies designed to handle turbulence.
- Range-Bound Markets represent 13.8%, where prices fluctuate within a defined range. These conditions favor mean-reversion strategies that capitalize on predictable movements within tight boundaries.
B. Rare but Impactful Subcategories
- Strong Trends appear in just 5.5% of cases. These sustained directional movements often drive major market cycles and are critical for momentum-based strategies.
- Flag and Pennant Patterns occur in 3.6% of the data. These short-term consolidation patterns signal breakouts and require quick action to capture their potential.
- Extreme Moves are the rarest, making up only 0.4%. These sudden, sharp price movements are typically driven by unexpected events and demand robust safeguards to manage risk effectively.
C. Key Takeaways on Market Behavior
When we look at Bitcoin’s market behavior as a whole, clear patterns emerge:
I. Volatile Conditions Dominate
Irregular market conditions, such as zig-zag movements and high-volatility choppy scenarios, account for 44.7% of all trades. This emphasizes the need for strategies that can quickly adapt to unpredictable price swings and capitalize on rapid changes. The large share of irregular markets underscores the importance of robust tools for navigating volatility.
II. Semi-Regular Conditions Remain Significant
Semi-regular markets, including range-bound markets and mixed volatility conditions, represent 37.3% of Bitcoin’s behavior. These environments provide a consistent opportunity for strategies designed to exploit moderate fluctuations and stable patterns. While less volatile than irregular conditions, they still demand precision and adaptability.
III. Trends Are Less Frequent
Regular market conditions, including weak trends and strong trends, now account for just 18.0% of trades. Despite their lower frequency, these scenarios often produce the most significant price movements, making them crucial for trend-following strategies. The reduced representation of regular markets compared to historical expectations suggests that pure momentum strategies need to be paired with complementary tools to handle more dynamic environments.
IV. What the Data Tells Us
This distribution highlights the importance of tailoring strategies to Bitcoin’s most common conditions while preparing for less frequent but impactful scenarios. The dominance of irregular markets calls for flexibility and strong risk management. Semi-regular markets emphasize the need for consistency, while the smaller presence of trends underscores the importance of integrating trend-following components into a broader strategy.
3.3. Implications for Strategy Development
The dominance of irregular markets underscores the need for strategies that can thrive in volatile and unpredictable conditions. Zig-zag movements and high-volatility choppy scenarios demand flexibility and quick execution to capitalize on sharp reversals and rapid price changes. Semi-regular markets provide a different challenge—structured but less chaotic. These conditions favor strategies that excel at recognizing recurring patterns, such as range-bound price action or moderate volatility, to deliver steady and reliable results.
Although regular markets account for just 18% of trades, they present opportunities for capturing sustained trends that can drive significant gains. Trend-following strategies are particularly valuable here, as they can take advantage of clear directional movements. At the same time, rare conditions like extreme moves and whipsaw events, while less frequent, can have a major impact on overall performance. Preparing for these moments with robust risk management tools ensures traders can safeguard their portfolios while seizing unique opportunities. By aligning strategies with the realities of Bitcoin’s market conditions, traders can optimize performance across a wide range of scenarios.
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4. PERFORMANCE METHODOLOGY
With a clear understanding of Bitcoin’s market conditions, the next step is evaluating how our strategy performs within these scenarios. A robust and transparent performance methodology is essential to identify where the strategy excels, where it falls short, and what drives these outcomes. By focusing on key metrics and a well-balanced weighting system, we can uncover actionable insights to refine and optimize the strategy.
4.1. Choosing the Right Metrics
To evaluate performance comprehensively, we use four core metrics: Sharpe Ratio, Sortino Ratio, Omega Ratio, and Tail Ratio. Each of these metrics was selected for its ability to capture a specific dimension of strategy performance, from risk management to resilience in extreme conditions.
The Sharpe Ratio is one of the most widely recognized measures of risk-adjusted returns. It calculates how much return a strategy generates per unit of total risk, offering a standardized way to compare performance across different strategies and conditions. However, its limitation lies in treating all volatility equally, whether from gains or losses. This can obscure performance in volatile markets like crypto, where upside volatility often skews results.
The Sortino Ratio addresses this limitation by focusing exclusively on downside risk. Unlike the Sharpe Ratio, it penalizes only harmful volatility—negative price swings—making it especially relevant in environments where protecting capital is crucial. The Sortino Ratio highlights how well a strategy minimizes losses, which is a key factor for long-term success.
The Omega Ratio provides a broader perspective by analyzing the likelihood of gains compared to losses across the entire return distribution. Unlike traditional metrics, the Omega Ratio doesn’t assume a normal distribution of returns, making it better suited for crypto markets, which often exhibit skewed and non-linear behavior. It captures nuances in performance that standard metrics might miss.
The Tail Ratio focuses on performance during extreme events, such as rapid price spikes or crashes. By comparing the size of returns in the upside tail to those in the downside tail, this metric reveals how the strategy handles market stress. It’s a critical measure for understanding resilience in high-volatility environments.
4.2. Why These Metrics Matter
Each of these metrics plays a distinct role in painting a complete picture of strategy performance:
- The Sharpe Ratio provides a broad measure of efficiency, showing how well the strategy balances returns against total risk.
- The Sortino Ratio zeroes in on downside protection, highlighting the strategy’s ability to preserve capital during turbulent periods.
- The Omega Ratio captures the full spectrum of gains and losses, offering a more nuanced view of how the strategy performs in non-traditional market scenarios.
- The Tail Ratio focuses on the edges of the return distribution, measuring the strategy’s behavior under extreme market conditions.
Together, these metrics ensure that we evaluate the strategy across a wide range of scenarios, from normal market activity to rare and unpredictable events. This holistic approach is particularly important for crypto trading, where volatility and market dynamics differ significantly from traditional asset classes.
4.3. Weighted Scoring System
To create a single performance score, we tested various weighting combinations for the four metrics. After extensive analysis, the following weights proved optimal for evaluating the strategy’s effectiveness in diverse market conditions:
Sharpe Ratio: 35%
Sortino Ratio: 35%
Omega Ratio: 15%
Tail Ratio: 15%
The decision to allocate equal weight to the Sharpe and Sortino Ratios reflects their complementary roles. The Sharpe Ratio offers a broad view of risk-adjusted returns, while the Sortino Ratio prioritizes downside risk management, a critical factor in preserving capital during volatile conditions.
The Omega and Tail Ratios, while equally important, receive slightly lower weights due to their specialized focus. The Omega Ratio provides insight into the probability of gains versus losses, especially in markets with non-normal return distributions. The Tail Ratio ensures the strategy is evaluated for resilience during extreme events, capturing its ability to manage risk under stress.
This weighting system strikes a balance between traditional risk-return measures and metrics that account for the unique challenges of crypto markets.
4.4. How the Methodology Drives Insights
This methodology is more than just a scoring system—it’s a framework for understanding the strategy’s behavior across different market conditions. By combining these metrics and weighting them thoughtfully, we can:
- Identify the market conditions where the strategy consistently outperforms Bitcoin.
- Highlight areas where the strategy struggles and requires refinement.
- Evaluate how well the strategy balances risk and reward across a range of scenarios, from everyday market activity to rare, high-impact events.
For example, if the strategy scores highly on the Sortino Ratio but lags on the Tail Ratio, it may indicate strong downside protection during typical market conditions but a need for improvement in managing extreme events. Similarly, a high Omega Ratio score combined with moderate Sharpe and Sortino Ratios suggests the strategy performs well in non-traditional market scenarios, like irregular or volatile conditions.
4.5. Connecting Metrics to Strategy Performance
This data-driven approach not only reveals how the strategy performs but also why it behaves the way it does. For instance, the strategy’s strong performance in volatile markets may be linked to high scores in the Sortino and Tail Ratios, reflecting its ability to manage risk while capitalizing on opportunities in chaotic conditions. On the other hand, weaker performance in range-bound markets may be tied to lower Sharpe and Omega scores, signaling a need for adjustments to improve efficiency in stagnant environments.
By focusing on these metrics, we gain a deeper understanding of the strategy’s strengths and weaknesses, creating a roadmap for continuous improvement. With this methodology in place, we’re ready to analyze how the strategy compares to Bitcoin under various market conditions and uncover actionable insights to enhance its performance.
5. OUR STRATEGY VS. BITCOIN IN VARIOUS CONDITIONS
With the methodology established, we turn to the comparison of how our strategy performs against Bitcoin across diverse market conditions. This analysis highlights where the strategy excels, aligns with Bitcoin’s behavior, or faces challenges. By exploring these dynamics, we can refine the strategy to enhance its strengths and address its weaker areas, ensuring it delivers consistent value in different trading environments.
5.1. Performance Across Main Categories
Bitcoin’s market conditions can be categorized into irregular, semi-regular, and regular markets, each presenting unique opportunities and challenges for our trading strategy:
| Main | Strategy Score | BTC score |
|---|---|---|
| Irregular | 4.448 | 1.083 |
| Semi-Regular | 3.360 | 0.741 |
| Regular | 2.222 | 0.962 |
A. Irregular Markets
Irregular markets, characterized by unpredictable price swings and triggered by unexpected events like regulatory news or liquidity shocks, account for 44.7% of Bitcoin’s trades. These conditions highlight the strategy’s adaptability and resilience. With a weighted score of 4.448, it outperforms Bitcoin’s score of 1.083 by 310.79%. Dynamic risk management tools, including real-time stop-loss adjustments, allow the strategy to effectively navigate sharp price movements and capitalize on volatility. This performance underscores the strategy’s ability to turn uncertainty into an advantage.
B. Semi-Regular Markets
Semi-regular markets, comprising 37.3% of trades, are defined by moderate volatility and partial trends. These conditions require a mix of precision and flexibility, which the strategy delivers with a score of 3.360, outperforming Bitcoin’s 0.741 by 353.63%. By leveraging trend-following components, the strategy consistently identifies opportunities in these structured but variable environments, making semi-regular markets a key area of strength.
C. Regular Markets: Consistency in Trends
Regular markets, which account for 18.0% of trades, involve clear, sustained trends. While Bitcoin often performs well in these conditions due to its strong directional momentum, the strategy remains steady with a score of 2.222, outperforming Bitcoin’s 0.962 by 131.10%. The strategy’s focus on smaller, incremental gains means it doesn’t fully capitalize on large price movements but still delivers reliable results in calmer environments.
5.2. Performance Across Subcategories
Delving deeper, we analyzed the strategy’s performance across Bitcoin’s ten subcategories of market conditions. The results show clear strengths in dynamic environments and areas for improvement in more stable conditions.
| Sub | Strategy Score | BTC Score |
|---|---|---|
| Flag and Pennant Pattern | 4.336 | 1.259 |
| Weak Trend | 3.928 | 0.337 |
| * Extreme Move | 3.503 | -2.167 |
| Zig-Zag Move | 3.019 | 0.419 |
| Mixed Volatility | 2.807 | 0.329 |
| High Volatility Choppy | 2.433 | 1.079 |
| Whipsaw Move | 2.217 | 0.351 |
| Strong Trend | 0.790 | 1.214 |
| Consolidation | -2.005 | 0.204 |
| Range-Bound Market | -2.387 | 0.674 |
*Sample size (7) is too small.
A. Top-Performing Subcategories
The strategy demonstrates exceptional performance in five key subcategories, consistently outperforming Bitcoin in environments that demand precision, adaptability, and resilience. These results highlight its strength in navigating complex and dynamic market conditions.
I. Flag and Pennant Patterns: Capitalizing on Breakouts
The strategy excels in flag and pennant patterns, achieving a score of 4.336, compared to Bitcoin’s 1.259, an outperformance of 244.32%. These setups, characterized by brief consolidation periods followed by breakouts, present high-potential opportunities. The strategy’s ability to quickly identify and act on these patterns ensures it captures profits during these critical movements.
II. Weak Trends: Precision in Subtle Momentum
In weak trends, where price movements are gradual and less pronounced, the strategy thrives with a score of 3.928, outperforming Bitcoin’s 0.337 by 1066.15%. Its nuanced approach enables it to detect and leverage subtle momentum shifts, converting small opportunities into consistent gains. This precision makes it particularly effective in conditions that might frustrate less adaptive approaches.
III. Zig-Zag Movements: Mastering Reversals
Zig-zag movements, marked by frequent reversals and sharp directional changes, highlight the strategy’s adaptability. Scoring 3.019, it significantly outpaces Bitcoin’s 0.419, an outperformance of 620.59%. By timing entries and exits effectively, the strategy consistently capitalizes on these unpredictable fluctuations, delivering reliable results.
IV. Mixed Volatility: Adapting to Shifts
Markets with mixed volatility—alternating between calm and turbulence—are another area of strength. The strategy scores 2.807, surpassing Bitcoin’s 0.329 by 753.93%. Its ability to adjust quickly to changing conditions ensures it remains effective in environments where stability can suddenly give way to unpredictability.
V. High Volatility Choppy Conditions: Thriving in Uncertainty
In high-volatility choppy markets, characterized by rapid and erratic price swings, the strategy delivers strong results with a score of 2.433, outperforming Bitcoin’s 1.079 by 125.43%. Its resilience and capability to navigate chaotic price action make it a standout performer in these challenging scenarios.
B. Challenging Subcategories
While the strategy performs well in many market conditions, there are specific environments where it may struggle. These challenges stem from limited volatility or directional movement, areas that are critical to the strategy’s typical approach. Recognizing and addressing these issues can open new opportunities for improvement.
I. Range-Bound Markets: Limited Opportunities
Range-bound markets, where prices oscillate within a tight band, present a significant challenge. The strategy scores -2.387, falling short of Bitcoin’s 0.674 by -453.98%. Without the directional trends or reversals that drive its success, the strategy struggles to find profitable opportunities.
II. Consolidation Periods: Stagnant Behavior
Consolidation periods, which often precede breakouts, also prove difficult for the strategy. With a score of –2.005, it trails Bitcoin’s 0.204 by -1083.59%. These quiet phases lack the movement needed for the strategy to generate returns. Adding parameters that detect and adapt to these stagnant conditions could improve its ability to position for breakout opportunities when the market eventually shifts.
III. Strong Trends: Missing the Momentum
In strong, sustained trends, the strategy also lags behind Bitcoin. Scoring 0.790, it underperforms Bitcoin’s 1.214 by -34.91%. While these environments provide clear opportunities for momentum-based strategies, the strategy’s incremental approach may miss out on larger gains. Adjusting the setup to better detect and ride these trends could close the gap and improve its overall effectiveness.
C. Key Takeaways
The contrast between the top-performing and challenging subcategories reveals the strategy’s core strengths and areas for refinement.
- Strengths: The strategy excels in volatile and dynamic conditions, delivering consistent results in environments with reversals, partial trends, and significant price swings. Its ability to outperform Bitcoin in 7 out of 10 subcategories demonstrates its adaptability and precision.
- Challenges: The strategy may struggle in stable and stagnant markets, and may also face issues in strongly trending markets. Addressing these weaknesses through targeted improvements, such as enhanced breakout detection, could broaden its effectiveness.
5.3. What This Means for Users
For users, the strategy provides a powerful complement to Bitcoin’s strengths. While Bitcoin thrives in trending markets, the strategy shines in high-volatility and unpredictable conditions, offering consistent returns when Bitcoin faces challenges.
By understanding the strategy’s strengths in dynamic markets and its weaker performance in range-bound or consolidation periods, traders can better align it with their goals. Whether used to diversify a portfolio, hedge against volatility, or as a primary system, this strategy’s ability to adapt across various conditions makes it a valuable tool.
6. PRACTICAL INSIGHTS FOR USERS AND INTERESTED PARTIES
In this final chapter, we distill the key insights from our analysis to guide both potential and current users of our trading strategies. For those considering our strategy, this discussion highlights its strengths and weaknesses, assisting you in determining if it aligns with your investment goals. Existing clients will gain a deeper understanding of what to expect from our strategy across various market conditions.
6.1. Managing Expectations
It’s clear by now that our trading strategy doesn’t excel in every market condition for Bitcoin—not by a long shot. It often happens that when “Bitcoin sings,” the strategy “stings.” During strong trends or sharp price surges—our strategy might not capture the full potential of these movements. Similarly, it tends to fall short during consolidation periods and range-bound markets.
For instance, consider a Regular market pattern observed in early 2024, a period marked by market optimism and recovery. Broader trends, such as increased adoption and institutional interest in Bitcoin, played a significant role during this time. Regulatory clarity in key markets and technological advancements, like Bitcoin Layer 2 solutions (e.g., the Lightning Network), may have fueled the steady uptrend. During this phase, Bitcoin delivered a total return of 38.56%, with relatively low volatility of 2.72%. While Bitcoin thrived in this stable, upward trajectory, the strategy underperformed due to its limited capacity to capitalize on strong directional movements.
Contrast this with the Semi-Regular market in mid-2022, a period of heightened volatility stemming from industry turmoil, including events like the collapse of Terra Luna and subsequent liquidity crises faced by platforms like Celsius and Three Arrows Capital. Bitcoin saw a total return of -48.57% and significantly higher volatility of 4.35%. Despite the sharp declines and unpredictable market conditions, the strategy demonstrated its strength by effectively managing risk and delivering stable returns, showcasing its resilience in volatile environments.
While such periods highlight the strategy’s ability to navigate uncertainty, we recognize that its limitations in other conditions can cause frustration. For instance, users may feel concerned when the strategy lags during Bitcoin’s rapid upward movements or remains relatively inactive in range-bound markets. However, it’s important to maintain perspective and not let short-term price fluctuations cloud your judgment.
The bigger picture matters because the strategy consistently outperforms Bitcoin in several other key scenarios, such as:
- Weak Trend conditions
- Zig-Zag movements
- Flag and Pennant patterns
- Extreme market moves
- Mixed Volatility
- Whipsaw Moves
In essence, the strategy thrives in dynamic, volatile environments but may underperform in stable or highly directional markets. By focusing on its overall performance rather than isolated situations, you’ll gain a clearer view of how it consistently delivers value across a wide range of market conditions.
6.2. Why the Strategy Moves Differently
The unique behavior of our algorithm was highlighted in a previous beta analysis, which examined how Oxido Solutions’ low-risk multi-strategy for Bitcoin Perpetual Futures on Binance Futures responds to Bitcoin’s price movements. That analysis found almost no correlation between the two. Sharp price swings in Bitcoin don’t necessarily lead to proportional changes in the strategy’s performance.
This new TCS-based analysis, which takes a closer look at the performance differences between Bitcoin and our strategy across various market conditions, reinforces those findings. The strategy consistently delivers results that differ significantly from Bitcoin’s behavior in different scenarios.
This divergence stems from the way the algorithm is built. It operates as a fully automated scalping tool, designed to capture small portions of trends. The approach focuses on achieving many small gains, with a win ratio exceeding 75%, which can compound into substantial long-term returns. Risk management tools—including a sideways filter, dual stop-loss system, and dynamic order sizing—help minimize downside risk and protect capital effectively.
6.3. A Strong Hedge for Bitcoin and Beyond
Our strategy offers a versatile approach to trading Bitcoin Perpetual Futures, with the flexibility to use USDT or Bitcoin as collateral. This dual option provides significant opportunities for both hedging and portfolio growth, depending on your trading preferences.
6.3.1. How the Hedge Works
A. Trading with USDT as Collateral
Using USDT as collateral allows you to earn more USDT, regardless of Bitcoin’s price direction. This makes the strategy an excellent hedge for a Bitcoin long-only spot position. The strategy generates consistent returns in USDT based on the volatility of Bitcoin. Even in volatile or bearish markets, the strategy offers stable returns, reducing overall portfolio risk.
B. Trading with Bitcoin as Collateral
For those who prefer to use Bitcoin as collateral, the strategy enables you to grow your Bitcoin holdings, regardless of whether the price is rising, falling, or staying flat. During strong trends, range-bound markets, or consolidation periods, your collateral benefits from Bitcoin’s price growth. In other market conditions, such as weak trends or high volatility, the strategy excels in generating additional Bitcoin, allowing you to accumulate more over time.
6.3.2. Dual Benefits of the Strategy
A. Value Growth in Favorable Bitcoin Markets.
Users holding Bitcoin as collateral see its value grow during strong trends and stable periods, while still benefiting from the strategy’s returns.
B. Consistent Returns in Challenging Markets:
Whether using USDT or Bitcoin as collateral, the strategy performs well in markets with volatility, weak trends, or irregular patterns, generating returns even when Bitcoin struggles.
6.3.3. Why This Hedge Matters
The strategy balances Bitcoin’s strengths in trending or stable markets with its own ability to thrive in dynamic and volatile conditions. This complementary performance provides users with:
A. Diversification
Trading with USDT as collateral creates a hedge against a Bitcoin-heavy portfolio, while Bitcoin collateral allows for accumulation during downturns.
Risk Management
Consistent returns across different scenarios help protect your portfolio from market swings.
Growth Potential
The ability to earn more USDT or accumulate Bitcoin provides meaningful long-term advantages.
By offering flexibility in collateral and excelling across varied market conditions, the strategy delivers a well-rounded tool for both hedging and maximizing portfolio value. Whether your goal is to protect against downside risk or grow your holdings, this approach ensures you’re prepared for whatever the market brings.
7. DISCLAIMER
This blog is for informational purposes only and does not constitute financial advice, investment recommendations, or guarantees of future results. The insights presented are based on historical data and backtested performance, which may not reflect real-world trading conditions. Past performance is not indicative of future outcomes, and trading cryptocurrencies carries significant risks, including the potential loss of principal.
The market conditions and strategy comparisons outlined in this blog are derived from historical observations. These categorizations are based on past data and trends, and their recurrence in the future is not guaranteed. Market behavior is inherently unpredictable, and results may vary significantly due to changing dynamics.
The performance methodology, including the weighted scoring system, reflects specific analytical choices made for this analysis. While the metrics and weightings used provide structure for evaluation, they are subjective and may not capture all aspects of trading performance. The methodology is not intended to predict future results or ensure universal applicability across all trading scenarios.
Comparisons between our strategy and Bitcoin highlight historical performance trends and serve as examples of potential outcomes in specific conditions. These comparisons do not imply guarantees of future performance or outperformance. Users should be aware that while the strategy aims to manage risk and deliver consistent returns, it cannot eliminate the possibility of losses.
Statements regarding the strategy’s role as a hedge, a stabilizing force, or a tool for consistent returns describe its intended application within a diversified portfolio. However, the strategy’s performance may vary depending on market conditions, and it is not risk-free. Users should assess their individual risk tolerance and investment objectives before implementation.
We encourage readers to conduct independent research and consult a licensed financial professional before making investment decisions. Oxido Solutions does not guarantee specific outcomes, and the data and opinions provided in this blog cannot be used to establish any rights, guarantees, or claims. Trading cryptocurrencies involves significant risk, and you should be fully aware of these risks before proceeding.
