Valuing Crypto and Forex Portfolios Across Quote Currencies

Summary

The document raises practical questions for researching and backtesting crypto or forex strategies when exchange pairs use different quote currencies. It asks how to value holdings in a common currency, such as USD, whether to use a direct market or a chain of conversion rates, and how to calculate dollar volume measures such as average daily volume. It also considers maintaining a large trading universe as a graph, with assets as nodes and pairs as edges, so conversion routes can be found dynamically.

The text offers no proposed method, calculations, or empirical evidence; it is a request for references and guidance. It highlights a real research design tradeoff: restricting a universe to USD-quoted pairs may simplify valuation but could create selection bias. The questions leave details unresolved, including how to choose among routes, account for liquidity and fees, or handle missing and inconsistent prices. These issues matter when comparing assets and measuring activity across markets.

Key ideas

• Portfolio research needs a consistent numeraire to compare holdings across quote currencies.
• A common currency value may come from a direct pair or a chain of conversion rates.
• Dollar volume measures such as average daily volume require conversion into the portfolio numeraire.
• A graph of assets and trading pairs is suggested as a way to find conversion paths in a large universe.
• Limiting research to USD quoted pairs may simplify valuation while potentially biasing the asset universe.

Tags

# How are portfolios of cryptocurrencies/forex managed due to all pairs not having the same numeraire?


# How are portfolios of cryptocurrencies/forex managed due to all pairs not having the same numeraire?












I am trying to build a backtester/perform research on cryptocurrency trading strategies.

The problem that I have ran into is, given the ohlcv data for all the pairs traded on an exchange, how do we manage this in a way like we would with equities?/is it okay to?

Let's say we have 3 pairs ETH/BTC, ETHUSD, and BTCUSD, and we want to value everything in USD. How do we value ETH in USD? do we just take ETHUSD or do we do (ETHBTC * BTCUSD)? If we want to rank our assets like we would in equity portfolio management, how do we determine ADV, etc.?

Additionally, how is this dynamically maintained when the universe of trading pairs is large and there is not a common quote currency? I have seen some stuff about maintaining a graph where the assets are the nodes and the trading pairs are the edges and you do pathfinding to determine pricing/dollar volume, etc.

Is this overcomplicating things by trying to start with pairs with different quote currencies? It seemes like using only those with USD as a quote currency could induce bias?

Any references on this would be appreciated as I am having difficulting finding any that detail this part of the process

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.