Sharpe, First Quarter Review for 2019
As the first quarter of 2019 draws to a close, we would like to take this opportunity to share with the community of SHP holders what we’ve been working on and lay out our plans over the coming months and beyond.
With BTC hovering at around the $4000 mark, precisely where it was three months ago, one could be forgiven for surmising all is quiet on the blockchain front. BTC trading volume, however, recently reached its highest level in 12 months, with various anecdotal reports that OTC-traded BTC is similarly growing.
Interest in novel blockchain platforms and products appears to be resurgent, with interesting picking up in initial offerings through exchange platforms (so-called “IEO’s”) have recently become popular means of fundraising — for example with Fetch selling out in seconds on the Binance launchpad , briefly trading afterwards at a 500% premium — however, these offerings are not without their skeptics.
From our perspective at least, a return to the token mania of 2017 would not be a progressive development for the industry, and we hope to to see startups raising reasonable capital through these means, and not the tens-to-hundreds of millions we’ve seen in recent history.
We’ve recently seen some positive changes in regulatory landscapes. Notably, Thailand is moving quickly to establish itself as a well-regulated environment for cryptocurrency and Digital Securities enterprises. At the recent Digital Securities Summit in Bangkok last week, positive sentiment certainly abounded from the panels. Sharpe is also particularly excited to follow the progress of IOB as they pursue the world’s first initial public offering of a token, through the German regulator BAFin. Finally, we’re keeping a close eye on the progress of Vega, who are building truly a decentralised derivatives exchange platform for both equities and crypto.
Sharpe Centuri Update
The most significant change we are rolling out in the next week is a reduction to the number of sentiment indications that users are permitted to provide in a one month period. We want users to have the best possible chance to maximise their reputation score and to earn service fees for providing accurate, useful sentiment.
It is now widely accepted that the majority of cryptocurrency assets are highly correlated with BTC and ETH, rendering individual sentiments to be somewhat of secondary importance. Analysis of user accuracy over the millions of predictions we have collected makes it clear that it is possible to have an edge on individual equities, but in crypto this edge entirely disappears.
We have taken the decision to mitigate these issues by removing crypto assets from Centuri, and to randomly display a sample of 150 equities from the S&P500 to collect sentiment from each user every month. In the longer term, we are working to optimise this process such that assets seen are related to those that each user has historically had greater accuracy in. We hope these changes will assist Centuri users in providing more thoughtful sentiment with less of the associated time pressures. This feature is scheduled to roll out to production at the end of this week.
Sharpe Global Sentiment Index
The ‘Global Sentiment Index’ is the internal project name for our market analytics product derived from Centuri user data, which combines crowdsourced sentiment with Machine Learning and Natural Language Processing technologies.
This technology comprises two core components, an enterprise grade platform and API for market analytics, and a web/mobile application for comparing insight from investment banks, ratings agencies, sentiment analysis, etc., including live news feeds, real-time market insight and portfolio management tools. There’s plenty of work going into leveraging and growing our Centuri sentiment providers within the GSI project, and we look forward to revealing more over the next quarter.
HFT & Market Making
We’ve made great strides in the development of our High Frequency Trading and Market Making technology. This includes having developed the most advanced backtesting technology on the market, built on top of terabytes of order and trade flow data collected from many exchanges over the past 12 months. This enables us to simulate the market at the order-book level to evaluate and optimise advanced trading strategies that even market leading backtesting tools were unable to support.
We’ve also made some fantastic progress in live testing with our High Frequency Market Making strategies on BTC-fiat markets, and include some of our latest results below.
Our live tests are now focused on stability amidst volatility, exemplified by the 26 day test run shown above. During 624 hours of continuous trading, our algorithm placed 26,609 orders, of which 15,421 filled and 11,118 were cancelled, equating to approximately 25 trades per hour, or one trade every 25 seconds or less. The equity curve above has an annualised Sharpe Ratio of 10.4 and a Beta of almost zero, meaning that the returns are highly uncorrelated to BTC price action, and have an excellent risk profile. During these 624 hours, a little over 100 BTC was traded.
Now that we are confident in the robustness of our technology, We have begun the next phase of our live tests, optimising for taking large volumes. The goal with our current one month test is to take $10–15m USD equivalent in BTC-fiat volume, while maintaining a similar risk profile and trading frequency to our earlier live test. The final phase of live-testing before operating at full steam involves optimising various risk management and algorithmic pricing strategies to maximise yield from the spread. At this stage, we can begin to expand to other highly liquid crypto-fiat markets. It is also worth noting that these results are un-leveraged, and with the present risk profile we expect that we can comfortably tolerate leverage of 4x (25% margin) once we have proven stability with significant volumes.
We appreciate the process has been more drawn out than many perhaps expected, but we are convinced we have developed possibly the most robust, sophisticated, best-in-class algorithmic trading technology stack in crypto. We are taking an ardently scientific approach to algorithm design, development and testing, and accompanying this ethos is the simple fact that it will take as long as it takes.
Sentiment Fees and SHP Lottery
We are pleased to announce that we paid $10,000 USD equivalent in Service Fees and 10,000 SHP for our monthly prize draw. We shall not be paying a discretionary quarterly fee at this time, as discussed in our previous update, in order to preserve capital while we continue to make strides in algorithmic trading development.
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Reach out to the Sharpe team via email: hello@sharpe.capital.
