The Quantitative Investor 1.51

1. ”Macro-scale quantitative market analysis” T Quantitati In`tor MARCH 18, 2021 VOL.I. . . No.51 BC ANALYTICS, LLC Abstract small commission, proportional to my share of the liquidity pool anytime a trader uses that trading pair. By BENJAMIN J. COWEN, PHD You have jumped into the cryptoverse! Welcome to the 51st edition of The Quantitative Investor, a weekly newsletter for those who want to dive deep into the metrics of various financial markets, with a focus on cryptocurrencies, and visu- alize data not often presented elsewhere. The main objectives of this newsletter are to graph key metrics, identify any trends or correlations, and present the data which will help the reader understand long-term price movements. This report is strictly not financial advice and should not be treated as such. Instead, it is focused on analyzing historical data, presenting the data in a manner which is informative, and making a few projections based on mathematics alone. The reader is still expected to do their own research when it comes to investing, especially within the cryptocurrency asset class. Liquidity Pools One thing to consider when using liquidity pools is imper- manent loss. If the demand for one of the tokens goes up a lot relative to the other token, you may actually have less of one token later on when you go to withdraw it. It is not hard to imagineascenariowherethecommissionsthatyoumadedonot make up for the fact that you could be slightly down in supply on one crypto that potentially went up 10x. I really prefer using liquidity pools during accumulation phases because the market is not going crazy each and every week. This week I have decided to do a more practical video where I show you how to use the liquidity pools on Uniswap and 1inch. I have used Uniswap a lot but have never actually used 1inch so you will be able to watch me at least attempt to navigate that site. Decentralized exchanges are nice to use because you do not have to trust a 3rd party with your crypto. However, one major downside to trading on the Ethereum network is the absurdly high gas fees right now due to how congested the network is. When we are in a bull market, there are even more risks with providing liquidity if the demand for one of the tokens goes up a lot relative to the other one. Additionally, the gas fees on the Ethereum network are absurdly high right now, which makes add liquidity even less attractive. However, I wanted people to be aware that liquidity pools do exist and it is a way to earn more crypto on commissions. To use an exchange like Uniswap, I have a Metamask wallet which I connect to the exchange. From there I can buy from a long list of tokens. After I buy some DAI using my ETH, I then provide liquidity to the ETH/DAI pair. You have to provide the equivalent USD value of both coins. Now, I will earn a

2. The Quantitative Investor MARCH 18, 2021 2 VOL.I. . . No.51 105 1 Price Risk 0.9 104 0.8 103 0.7 BTC Price ($) 0.6 102 Risk 0.5 101 0.4 0.3 100 0.2 10-1 0.1 10-2 0 2010 2012 2014 2016 2018 2020 After I show how to provide liquidity to Uniswap to earn crypto off commission, I then head over to 1inch.exchange (which I have never used) to attempt to navigate it and carry out the same task. Check out the video where I go through these steps in case you do not have experience with adding liquidity to trading pairs on decentralized exchanges! Let me know if these types of weekly topics are appreciated or if you would prefer I focus on other things! I am still trying to navigate what type of content is most useful as this stage of the market cycle, and am trying to appeal to different types of investors who come from very different backgrounds. Figure 2: Bitcoin price (primary y-axis) and risk (secondary y-axis) vs. time. Asset BTC ETH LTC ADA LINK XRP XMR SPX Price $60096 $1832 $207 $1.36 $30.19 $0.48 $239 $3974 Risk 0.854 0.584 0.604 0.630 0.617 0.310 0.510 0.829 Risk (Last Wk) 0.854 0.601 0.624 0.590 0.618 0.301 0.510 0.829 Risk 105 1 2000 1 0.9 1800 0.9 104 0.8 1600 0.8 0.7 1400 0.7 BTC Price ($) 103 0.6 ETH Price ($) 1200 0.6 0.5 1000 0.5 102 0.4 800 0.4 0.3 600 0.3 101 0.2 400 0.2 0.1 200 0.1 100 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 0 Jan 2019 Jul 2019 Jan 2020 Jul 2020 Jan 2021 Figure 1: Bitcoin price vs. time with a color-coded risk dimen- sion. Figure3: Etherpricevs. timewithacolor-codedriskdimension.

3. The Quantitative Investor MARCH 18, 2021 3 VOL.I. . . No.51 104 103 1 1 0.9 0.9 103 0.8 0.8 102 0.7 0.7 ETH Price ($) 102 0.6 0.6 BNB ($) Risk 0.5 101 0.5 101 0.4 0.4 0.3 0.3 100 100 0.2 0.2 0.1 0.1 10-1 0 2016 2017 2018 2019 2020 2021 10-1 Jan 2018 Jan 2019 Jan 2020 Jan 2021 Figure 4: Ether price (primary y-axis) and risk (secondary y-axis) vs. time. Figure 7: Cardano price vs. time with a color-coded risk dimension. 103 1 0.9 0.8 0.7 102 LTC Price ($) 0.6 0.5 0.4 101 0.3 0.2 0.1 100 2013 2014 2015 2016 2017 2018 2019 2020 2021 Figure 5: Litecoin price vs. time with a color-coded risk dimension. 103 1 103 1 Price Risk 0.9 Price Risk 0.9 0.8 0.8 102 0.7 0.7 102 0.6 LTC Price ($) 0.6 BNB ($) Risk 101 Risk 0.5 0.5 0.4 0.4 101 0.3 0.3 100 0.2 0.2 0.1 0.1 10-1 100 0 0 Jan 2018 Jan 2019 Jan 2020 Jan 2021 2015 2016 2017 2018 2019 2020 2021 Figure 6: Litecoin price (primary y-axis) and risk (secondary y-axis) vs. time. Figure 8: Cardano price (primary y-axis) and risk (secondary y-axis) vs. time.

4. The Quantitative Investor MARCH 18, 2021 4 VOL.I. . . No.51 103 1 1 0.9 0.9 0.8 0.8 102 101 0.7 0.7 0.6 0.6 LINK ($) XMR ($) 101 0.5 0.5 0.4 100 0.4 0.3 0.3 100 0.2 0.2 0.1 0.1 10-1 10-1 Jan 2018 Jan 2019 Jan 2020 Jan 2021 2015 2016 2017 2018 2019 2020 2021 Figure 11: Chainlink price vs. time with a color-coded risk dimension. Figure 9: Monero price vs. time with a color-coded risk dimension. 103 1 1 Price Risk Price Risk 0.9 0.9 101 0.8 0.8 102 0.7 0.7 0.6 0.6 LINK ($) XMR ($) Risk Risk 101 0.5 0.5 100 0.4 0.4 0.3 0.3 100 0.2 0.2 0.1 0.1 10-1 10-1 0 0 2015 2016 2017 2018 2019 2020 2021 Jan 2018 Jan 2019 Jan 2020 Jan 2021 Figure 10: Monero price (primary y-axis) and risk (secondary y-axis) vs. time. Figure 12: Chainlink price (primary y-axis) and risk (secondary y-axis) vs. time.

5. The Quantitative Investor MARCH 18, 2021 5 VOL.I. . . No.51 4000 104 1 1 0.9 0.9 3800 0.8 0.8 3600 103 0.7 0.7 3400 S&P 500 ($) 0.6 S&P 500 ($) 0.6 3200 Risk 102 0.5 0.5 3000 0.4 0.4 2800 0.3 0.3 101 0.2 2600 0.2 Price ($) Risk 0.1 2400 0.1 100 0 2200 0 1920 1940 1960 1980 2000 2020 Jan 2017 Jan 2018 Jan 2019 Jan 2020 Jan 2021 Jan 2022 Figure 14: S&P 500 price (primary y-axis) and risk (secondary y-axis) vs. time. Figure 13: Price of the S&P 500 vs. time with a color-coded risk dimension.