ETH BTC Ratio Mean Reversion Pairs Trade

Hypothesis

Market-neutral pairs trade exploiting the mean-reverting nature of the ETH/BTC price ratio. ETH and BTC are ~85% correlated but their ratio oscillates within regimes — when ETH outperforms BTC sharply (ratio spikes), it tends to revert, and vice versa. The strategy goes long the underperformer and short the outperformer when the ratio deviates significantly from its rolling mean. This provides true diversification from the existing pipeline — it is market-neutral (profits regardless of crypto direction), uses a different signal source (cross-asset ratio), and is uncorrelated with both trend-following and funding-rate strategies. In the current extreme fear environment, correlations spike then break down, creating frequent ratio dislocations as ETH and BTC respond differently to catalysts (e.g., ETH staking ETF inflows vs BTC ETF outflows).