Lessons from Crypto Mining, Arbitrage, Market Making, and Backtesting
Summary
This personal account traces the author’s path from hardware development into cryptocurrency mining and automated trading. It describes early Litecoin mining, holding coins through a severe decline, and later selling during a recovery. The trading discussion covers cross-exchange arbitrage, grid strategies, and high-frequency market making, with a focus on how competition from bots narrowed arbitrage spreads and made execution speed and fees more important.
For market making, the author proposes estimating a slower venue’s value from its price plus a moving average of the difference from a faster venue. The account also describes a related strategy that trades against lagging prices. Reported live results were inconsistent, and the author says several market-making attempts failed to become profitable. These are individual experiences, not controlled tests or evidence of repeatable returns. The author’s planned tick-level backtest would incorporate order-book data and simulate fills against available liquidity, reflecting the limits of evaluating strategies using signal prices alone.
Key ideas
- Cross-exchange arbitrage opportunities narrowed as automated competitors entered and spreads contracted.
- A market-making approach can estimate a lagging venue’s value using its price and a moving average of its difference from a leading venue.
- The author reports inconsistent results across grid trading and market-making attempts, illustrating the limits of personal trading anecdotes.
- Backtests that model fills against order-book data may better reflect execution than assuming orders fill at signal prices.
- Holding mined coins through a large price decline without hedging exposed the author to substantial downside.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.