Liquidity matters: why rebalancing works better on Binance than on Bittrex

14 Dec, 2018 | Updated: 14 Dec, 2018
by Alberto Arnaldo
Liquidity matters: why rebalancing works better on Binance than on Bittrex

San Francisco-based Shrimpy, a bot trading tool that enables users to automate asset management, released yesterday a comparative study about the outcomes of different trading strategies on two of the best known exchanges. Results were not great for HODLers nor for Bittrex.

Data for this study ranged between December 2017 and October 2018, and two trading strategies were compared on Bittrex and on Binance: buying and holding, against rebalancing.

Rebalancing consists in periodically adjusting the percentage of each coin on a portfolio, generally taking advantage of price swings to transfer gains from rallying coins into increasing the amount of those which are in red, thus going back to a fixed percentage of each coin after every rebalancing period. Shrimpy also published results of an experiment comparing HODL and rebalancing strategies, and the second beat the first in 92% of all portfolios.

The list of assets traded included BTC, ETH, XRP, USDT, LTC and 30 other cryptocurrencies. $5,000 portfolios were constructed randomly using 10 coins, running 1,000 simulations on both exchanges.

Read more: Bittrex now supports direct fiat-to-crypto trading

Researchers were not accounting for differences in trading fees, using on both cases the 0.1% fee per trade established on Binance. However, they argue that this decision was taken due to the need of the fee being the same for proper liquidity evaluation.

The following tables show the results of the simulations for the different rebalancing periods of an hour, a day, a week or a month.

Finally, the Binance rebalancing portfolio showed a 26% improvement over the Bittrex one. Shrimpy researchers believe that the profit difference between exchanges is mostly due to liquidity: when it is high, the resulting bid/ask spread tends to be smaller, with large trades having less of an impact on the markets.

Read more: Top 30 exchange asking projects 'to use trading bots to create fake volume'; "Siri, send XRP!": New tool offers custom voice commands for the Ripple community

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