Ethereum vs. Bitcoin - Relative Value Coin Analysis

Ethereum vs. Bitcoin - Relative Value Coin Analysis

Ethereum vs. Bitcoin – Relative Value Futures Analysis using Masters in Trading's new Futures EDGE charting platform.

The following is a live Futures class held by Pablo Lucena, professional trader and Jonathan Rose, owner of Masters in Trading. In this video, note how the EDGE charting platform analyzes price and PnL rather than the price of the spread. The EDGE trading platform analyzes multiple trading symbols.

Also notice how when Bitcoin rallys, Ethereum eventually catches up. You'll be able to spot the exact moments of the divergence in Bitcoin Futures compared to Ethereum futures contracts.

Watch the video below or read the transcript at the bottom of this post.


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Pablo take it away, guys. I'm in the background. Looks like we're having a pretty good day. Pretty exciting stuff.

Yeah, definitely a great day. I think I saw a Bitcoin hit 60,000 and if I am not mistaken, Ethereum is at 3,800 or so. Yeah. Exciting times. Yeah. I'm just using the tool and comparing these two assets as you speak about them and I'm doing this for two reasons. Number one, to put the two assets in the spotlight that we're talking about, Bitcoin and Ethereum. And number two, to show any of you that have not yet used this, the dashboard with the ability to plot more than one symbol. One thing to keep in mind is that if you're on the dashboard, which is very different from the rest of the tools, so there's a dashboard and then we have the rest of the tools. So all of the rest of the tools, under edge tools, apply the edge logic that we're used to for the thinker swim tools.

And that is primarily the fact that when we plot stuff and we are looking at charts, we are not looking at the price of ZB, such as, its shown in this chart, right? We don't care if it's trading at 159 bond points. What we really care about in the edge tools is the PNL of holding in this case, two ZB contracts. So in the dashboard, whenever you're in the dashboard, think I am charting something on toss. That's, pretty much what it is. However, just like pause. We also have the ability to plot more than one symbol at the same time. And in this case, I did, bonds and Bitcoin, just for no reason at all. I mean, just because it's possible to do now, they're going to have completely different prices since one of them is ZB and the other one is Bitcoin, right?

This is price, then bond points, and this is price then I guess, dollars, but they're completely different. This is not a fair comparison to make. However, if I do something that is comparable, like the Ethereum to Bitcoin, and I have one of them on the left axis. In this case, Ethereum is on the left axis. The first one, the second one Bitcoin ends up on the right axis. And even though their prices are different, the Ethereum is less than 4,000 and Bitcoin is around 60,000. One thing that we can definitely tell from this short 30 date, 10 minute chart, is that there is a correlation between the two. Last week, for example, I think it was during Wednesday, or it may have been Friday's class what's been occurring lately, at least in this market.

If anybody has exposure here, is that whenever Bitcoin in the past has rallied ahead of Ethereum, what ends up happening is that a Ethereum just catches up to it. And we're seeing that materialize towards the back end of this week. Yesterday, I think the day before, and a little bit more today, I hope this part makes sense. And we can take this analysis of comparing the Ethereum futures and the Bitcoin futures. One step further using our edge tools. We can build our very own crypto edge tool.

You can do this on your own after being logged in, but let's say I call this crypto. And one of them is ETH with a ratio of one, and I'm going to ping it the red. And the other one is Bitcoin, also with the ratio of one, and I'm going to ping it the blue. Well, now this is giving me what we would expect to see if we're using the thinker swim version. Now we're starting from zero and from zero being $0, you're flat. You have no position. We go back, you have 30 days using 10 minute interval. So if we would have purchased one Ethereum future contract, 30 days ago, today, the PNL would be 24 grand.

Had we done the same thing using Bitcoin, the Bitcoin futures 30 days ago, hadn't purchased one Bitcoin future and held onto it. Mind you that the margin for one of these future contracts is about $120,000 for the Bitcoin one. And I believe the Ethereum one is somewhere around 80,000 or 70,000 of margin, even though the profits look great. There were still a period of time during these past 30 days that holders of these contracts, they were losing money, assuming they purchased it exactly 30 days ago. And they were down in the red plus margin. Hey, look at that right about the same amount on Bitcoin, it was negative 27 grand. And on the Ethereum, it was negative 23 grand. Can anybody tell where I'm getting that information from the negative 27 grand, negative 23 grand? Yes. You got to George top, right?

All right. But the part that interests me the most, even though I'm not trading future contracts in these markets, in the Bitcoin and the Ethereum market, I'm just not trading the futures. I am very much solo, however, involved in the underlying asset, I do hold Ether and I do hold some Bitcoin, not a lot. What I really like about this is that we can spot the exact moment when divergence between these two closely related crypto assets started to form. And that was right at the beginning of October.

So since October, Bitcoin has been outperforming on a relative basis, the Ethereum, but as I mentioned earlier, these gaps tend to close. They don't last forever, and the gap can close. And more than one way, the gap can close by, Bitcoin continues going up. Let me change colors. So that if a Bitcoin continues going up, this gap would close. If Ethereum rallies at a faster pace than Bitcoin such that, 10 days from now or 15 days from now, when we look at the chart again, the two lines are pretty much touching each other, how they are right here before the breakout of these two assets took place. Now that's one way that it can occur.

It's not the only way though. How else can this gap close? And this is important to, keep in mind, because what I'm talking about here applies to us trading bonds, us treating any sort of relative value futures trade, is based upon this premise. So what can also happen is, we can get a big sell off. So if Bitcoin sells off and Ethereum doesn't really do much, well that closes our gap, but there's still more ways that the gap can close. How does one take advantage of such a gap without taking directional risk?

It does not have to be Ethereum versus Bitcoin. I'm just trying to prove a point. These were acid A and acid B, had other products. So, what I would do here is, I would go back and look at a bit more data and see when these gaps occur, how long do they tend to last? So, that's something I would want to look at. And I just expanded out to 90 days. We went from 30 days to 90 days. Here's the same exact gap that I was showing you just a moment ago on the 30 day chart. Now we're looking at 90 days. Here's the beginning of October when that gap first formed. And what's interesting is that, at least going back to 90 days, I know that we can go back a lot more, but just 90 days, we were looking at 30.

Now it's 90. We see that there is a period of disconnect right here, and we see another one right here. And there may have been others, but I'm not counting them because they're too small. So the past 90 days, there's been these three times where, the price of one asset has diverged from the other, and what's happened each time? I think the answers are obvious here. What we've seen is that, the price of the other asset catches up or the price of the asset, that's going up way too fast, comes down. An example of that is of right, at the beginning of this chart, let me get back the little drawing tool, where we can see her is during July and between July and the beginning of August. Bitcoin took off, and left the Ethereum, rallying at a slower pace and what ended up happening the gap closed, but the gap closed by virtue of Bitcoin, not rallying while Ethereum continued to do so. That's, that's another way for that gap to close.

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