Shield Academy | Common Patterns In Ethereum Price Movements, and How to Recognize Them
Ether (or ETH) is the second most valuable cryptocurrency by market capitalization and the Ethereum blockchain’s native asset. Ether’s price patterns and variations are worth studying as one of the most widely traded crypto-assets, second only to Bitcoin.
Intraday data can reveal when the price of ETH has done well on average, when ETH price volatility is higher, and when ETH price commonly demonstrates trending/ranging behavior at different times of the day. The rolling 30-day, 60-day, and 90-day returns are some examples of momentum indicators.
Since September 2015, the calendar heatmap below shows the rolling 30-day return on investment for ETH. To add more clarity, positive returns have been changed to 1 and negative returns have been coded as 0:
A green square on the calendar indicates that the 30-day return on investment was positive on that particular day.
- A red square on the calendar indicates that the 30-day return on investment was negative on that particular day.
The squares normally stay green for a while after the 30-day returns have been positive for a few weeks. Similarly, once the 30-day ROI is negative, it might remain negative for several weeks.
In the past, the 30-day return on investment for ETH-USD has always been positive in the first two months of the year and in May. Between 2015 and 2019, December, on the other hand, had a negative 30-day ROI for all or most of the month (with 2017 as an exception). The 30-day price volatility, like returns, tends to rise in particular months (February, March, and April), whereas the latter two months of the year are often less volatile.
The Monthly Returns Distribution
The first four months of the year are usually positive for ETH-USD, whereas the latter four months of the year can be close to or below zero. Up till now, the highest median monthly returns have been in May and April, both above 50%. September and November had the lowest median monthly return, as shown in the boxplots.
The given monthly return distribution for ETH-BTC shows that ETH performs well against BTC in January, February, and May. The entire boxplot, on the other hand, is negative for July.
ETH-USD Intraday Returns, Volatility, and Trends
Intraday data can also be utilized to uncover trends that are more valuable to short-term traders or scalpers.
The next parts use Bitfinex 1-hour and 4-hour data for ETH-USD and ETH-BTC to construct data visualizations in RStudio to demonstrate:
1. When Ether has tended to appreciate or depreciate on average,
2. Which trading sessions have stronger trends (or more sideways price action) on average
3. When Ether has tended to appreciate or depreciate on average,
Returns on ETH-USD by Hour/Day of Week
The violin plots show the distribution of hourly returns over periods of varying lengths. Although they all have a mean close to zero, the actual distribution of returns varies greatly depending on the time of day.
For example, during the 01:00–02:00 trading session (second from left), positive and negative returns are virtually evenly distributed. However, the returns are biassed to the downside during the 10:00–11:00 trading session, with the greatest loss (approximately -20%) in ETH’s trading history.
A heatmap is built using 1-hour price data for the ETH-USD pair on Bitfinex to show average ETH price fluctuations throughout a specific hour and weekday. The data set spans the dates of 09/03/2016 at 16:00 and 10/07/2020 at noon, totaling 37,593 observations. All times are considered in UTC.
The intensity of price variations is represented by the colors of the squares:
- The dark purple squares indicate hours when the price of Ether has been trending downward.
- The orange/yellow squares represent the hourly sessions during which the Ether price has often been positive.
ETH-USD Volatility by the hour and weekday
For each 1-hour (or 4-hour) trading session, volatility is computed as [(high-low)/open]. The dark purple squares represent hours with low volatility, whereas the yellow/light orange squares represent hours with high volatility.
Hour/Day of the Week Candle Body Ratio for ETH-USD
We use the average of the Candle Body Ratio by an hour and weekday combined to determine when the price of Ether is more likely to trend.
A Candle Body Ratio of 1 indicates that ETH-USD is likely to trend during a given hourly trading session. If the ratio is near 0, the ETH-USD pair is more likely to see choppy price action during that trading session. When the mean of the ratio is calculated for each hour and weekday, a greater mean value indicates a larger possibility of trending ETH price action than a lower mean value.
In the early hours of the day, the average Candle Body Ratio is higher. The ratio is greater on average on Fridays (07:00–08:00), Tuesdays (06:00–07:00), and Sundays (03:00–04:00), according to the data.
The accuracy and dependability of the insights offered here may be impacted by future changes in the dynamics of ETH returns, volatility, and ETH price movement.