fx strategies in cryptocurrency space

(how) does carry trade work in the crypto universe?

I investigate if the simple carry trade strategy is implementable in the cryptocurrency space and provide instructions and fully replicable code to replicate my findings; using data from the Kraken exchange, I show that sorting cryptocurrencies on the analogue of the fiat interest rate results in a statistically and economically meaningful excess returns and Sharpe ratios; my finding thus adds another asset to the universe of those where the carry trade anomaly is pronounced.

go to walkthrough for results.

requirements

there are some tests which will be passed once the rest of this section has been dealt with:

python -m unittest discover

first, environment variable PROJECT_ROOT must point to the project folder; you can set it in the .env file, and python will rely on python-dotenv to set it.

second, the necessary virtual environment can be created from requirements.txt:

python3 -m venv .venv; source .venv/bin/activate; pip install -r requirements.txt

to create a virtual environment in $PROJECT_ROOT/.venv and install all packages; please don't forget to activate it every time!

third, package foolbox must be downloaded to where python can find it.

fourth, a certain data folder layout must be adhered to; you can create it with

make data_dir_layout

fifth, you have to download spot and perpetual futures prices from Kraken:

• download the five .zip archives of spot prices from 'Separate ZIP files' – one for each cryptocurrency – and place them in data/raw/spot/kraken/;
• download all .csv.zip archives following the link here and place them indata/raw/perpetual/kraken/;

$ ls data/raw/spot/kraken
BCH_OHLCT.zip
ETH_OHLCT.zip
LTC_OHLCT.zip
XBT_OHLCT.zip
XRP_OHLCT.zip

$ ls data/raw/perpetual/kraken
matches_history_2018-01.csv
matches_history_2018-02.csv
...

after this the following should work when run in the command line:

make prepare_data

this will create several .ftr (feather) data files in data/prepared/spot(perpetual)/kraken/ that are used by functions from src.datafeed_.kraken.downstream