RIALTO.AI Q Report. Q Report

Transcription

1 Q Report

2 CONTENTS FOREWORD MARKET REPORT PROGRESS REPORT ARBITRAGE AND MARKET MAKING AI TRADING BOT FUTURE PLANS LEGAL DISCLAIMER

3 FOREWORD During Q1 2018, we have witnessed extreme volatility on crypto markets. Total market capitalization of cryptocurrencies reached its peak at the beginning of January but during the remainder of the quarter, the prices of cryptocurrencies were declining. Total market capitalization has shrunk to only a quarter from its value reached two and a half months ago. While our trading strategies are constructed to perform regardless of the market direction, the market liquidity is crucial for achieving optimal results. In the first quarter of this year, we have observed a strong correlation between trading volume and market direction. Along with prices of cryptocurrencies, the trading volume has been decreasing. Lower liquidity was even more pronounced on the smaller exchanges where spreads were larger and generated the highest profit per trade in the past. In order to countebalance decreased liquidity, we included new trading pairs, and we added one new exchange to market-making activities. In the third quarter, we are planning to add additional strategies to our AI Trading Bot, add another three to four exchanges to our market-making activities, and also start to perform market making on additional products. 3

4 MARKET REPORT In the first three months of 2018, cryptocurrency markets suffered a significant decline in value the market capitalization of all cryptocurrencies, which reached its maximum of $831 billion on January 7, 2018 (coinmarketcap.com), dropped to $254 billion on March 30, 2018, representing an almost 70% decline. Global Charts / Total Market Capitalization [Chart: market capitalization and 24h traded volume in Q1 2018] Market s decline was steepest at the beginning of the quarter, shortly after the market reached its peak in the beginning of January, while volatility decreased in the second half of the quarter. During the quarter, cryptocurrencies markets were mostly under the influence of negative news. Some of the news with the highest impact on the market are listed below: January 9, 2018; Users of many Indian Bitcoin exchanges have been facing difficulties as Indian banks are strangling bitcoin exchanges by blocking payments and withdrawals. Beginning of January, the Indian government and India s central bank have made a clear statement that they are not keen on virtual currencies, and the January s spike in BTC value which attracted numbers of new investors has only made the government more vehement in its criticism. However, by emphasizing that these currencies are not legal, and without declaring them illegal the Indian government has put them in the gray zone. In addition, the director of the Reserve Bank of India has repeatedly signaled that virtual currencies like bitcoin are not a legal tender in India. January 26, 2018; A Japanese cryptocurrency exchange Coincheck has been involved in perhaps one of the biggest heists where approximately $500 million worth of NEM held by Coincheck customers has been illegally remitted outside the exchange. NEM, the tenth largest cryptocurrency based on total coin market cap, is a distributed ledger platform for payments and financial services. The heist reportedly exceeded the $460 million 4

5 in bitcoin heist reported by the Mt. Gox exchange back in January 31, 2018; Facebook announced a new policy according to which all ads that promote cryptocurrencies are to be banned. The statement came from Rob Leathern, company s Product Management Director who explained that Facebook has created a new policy, that prohibits ads that promote financial products and services that are frequently associated with misleading or deceptive promotional practices, such as binary options, initial coin offerings, and cryptocurrency. Meaning that no advertisers, even those who perform legal and legitimate business will have a possibility to promote their products and services related to cryptocurrencies in order to protect Facebook users against fraudulent cryptocurrency projects. February 5, 2018; After China s attempts to stamp out digital currencies by closing down domestic cryptocurrency exchanges failed to abolish trading, further regulatory measures to restrict the use of overseas ICO platforms and cryptocurrency exchanges were announced in an article published on February 4, 2018, by Financial News, a publication affiliated to the People s Bank of China (PBOC). Even though it is difficult to supervise overseas cryptocurrency trading, measures can still be taken including restriction of online trading by blocking internet accounts, shutting down web servers, forbidding illegal traders from leaving the country and enhancing coordination with overseas regulators, said Yang Dong, director of the Fintech and Internet Security Research Center at Renmin the University of China. If China s stance on ICOs wasn t clear before, it is becoming increasingly certain that Chinese regulators have little faith in ICOs and cryptocurrency trading. This contradicts the assertion by some cryptocurrency experts that China will permit the resumption of ICOs and cryptocurrency trading in the near future after eliminating bad practices. February 26, 2018; Circle, a closely held mobile payments firm, backed by Goldman Sachs, acquired USA-based cryptocurrency exchange Poloniex over a year after announcing it was shifting focus from Bitcoin to blockchain-based services. At the time, the company informed its Bitcoin customers that they can cash out or transfer their balances to Coinbase if they wished to continue to use the cryptocurrency. In their blog, following the acquisition, Poloniex has stated that working closely with the Circle team, we have found a shared vision for a future in which decentralized cryptocurrency protocols create a far more open, inclusive, and evenly distributed global economy. In addition to facilitating compliance, Circle also announced that it will add fiat bridges and expand the operation to other markets. March 8, 2018; Nobuaki Kobayashi, the Tokyo-based lawyer and trustee of the default Bitcoin exchange Mt. Gox, which filed for bankruptcy back in 2014, has disclosed that he has been selling Bitcoin and Bitcoin Cash holdings worth a total of $400 million since September Kobayashi, who is unloading and liquidating his assets on behalf of the Mt. Gox creditors said his decision to sell was made following a consultation from 5

6 the court. He also said that he has another $1.8 billion worth holdings to offload. On Wednesday, March 7, Kobayashi published the details of the sale wherein the trustee has sold 35,841 BTC and 34,008 in bitcoin cash. In the next table, we can observe the price change for the 12 largest cryptocurrencies by their market capitalization. We can observe that BTC decline was slightly lower than from the rest, and we can additionally observe relatively lower BTC volatility by looking at high/low price span. [source: BTC dominance increased in the first quarter of 2018 while it was gradually decreasing towards the end of

7 PROGRESS REPORT In the first quarter, we have successfully launched the RIALTO.AI platform that enables XRL token holders to deposit their tokens, select desired trading strategy, and participate in the profits generated by the selected strategies. Furthermore, it enables token holders to directly exchange XRL tokens for funds held on the platform (payable in ETH). The launch of the platform was a crucial step for the further growth of RIALTO.AI and will enable new products/services with much easier accessibility for XRL holders. ARBITRAGE AND MARKET MAKING During the first quarter, three exchanges were added to the production environment two of them were already included in the test environment in the previous quarter. The main focus during the quarter was on the development of improved market-making bot with the objective to have the faster reaction time to price changes and capability to handle larger number of exchanges and trading pairs. This market-making bot is currently being tested and we expect the full launch in the mid of the second quarter. In the first quarter of 2018, RIALTO.AI performed market-making activities on 6 exchanges, on two fiat currencies (USD, EUR) and 10 cryptocurrencies: Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin (LTC), DASH, Monero (XMR), EOS, Bitcoin Gold (BTG), Zcash (ZEC), and Bitcoin Cash (BCH). The most traded currency pairs in Q1 are presented below (the total number of trades is 35,217, of which 12,397 were made with market making and 22,820 while hedging those trades). Distribution of trades in Q Distribution of trades in Q % 7% 11% 22% 11% 13% XRP/BTC BTC/USD ETH/BTC XRP/USD BCH/BTC REST 58% 10% 10% 8% 7% 7% XRP/BTC BTC/BCH BTC/XRP USD/XRP XRP/USD REST 7

8 Number of trades (market-making) by trading period and pairs in Q REST BCH/BTC BCH/USD ETH/BTC XRP/BTC XRP/USD [Chart: number of trades, made by Market Making in different pairs through periods] In this quarter, we observed that the trading was more concentrated on a few trading pairs, compared to the previous quarter when it was more evenly spread between different pairs. The most interesting trading pairs were changing through the quarter as shown in the last chart. The cryptocurrency that was traded the most was XRP, mainly against BTC and USD. It is significant that at the beginning, the number of trades was relatively low with high profit per trade, which changed in later periods when the number of trades increased while profitability declined. [Table: summary of RIALTO.AI Market Making trades and profits in Q1] Next table shows the profit of market-making operations in relation to the value of platform funds used for trading in this quarter. A simple projection is also calculated to annualize the data. 8

9 Profitability of market-making operations decreased through Q1. The main reason was decreasing volatility and liquidity on cryptocurrency exchanges. In the next chart, we can observe that overall profit is strongly correlated to the traded volume on markets. Aggregated volume (BTC/USD, in musd) vs market-making profitability Volume (in musd) Period profit [Chart: aggregated volume of trading (data from cryptocompare.com) compared with RIALTO.AI MM profit] Platform funds, deployed by market making, consisted of all the cryptocurrencies and fiat currencies used in trading (USD, EUR, Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin (LTC), DASH, Monero (XMR), EOS, Bitcoin Gold (BTG), Zcash (ZEC) and Bitcoin Cash (BCH)). The amounts of cryptocurrencies that we used remained mainly steady. However, because of the dynamics of the markets, the USD values of individual cryptocurrencies were changing through time, as shown in the chart below. USD values were calculated using close prices at the end date of the corresponding periods. DAP - USD value by currencies BTC XRP USD ETH BCH EUR Rest (EOS, DASH, ZEC, XMR, LTC, BTG) [Chart: USD Value of funds in DAP for RIALTO.AI Market Making] Altogether, the algorithm has executed 12,397 trades in market making and 22,820 while hedging those trades. The average profitability per trade of $28.4 was reached. Time dynamic of profitability was in decline, mainly as a consequence of declining volatility and traded volume on the cryptocurrency markets. Absolute profit reached in this quarter (including trading period starting on December 23, 2017) was $235,835. 9

10 AI TRADING BOT During Q1 2018, we were focusing on improvement of our infrastructure for trading, because we came to a conclusion that it needed to be more advanced for running multiple strategies at the same time in different time intervals. From December 1, 2017, to March 31, 2018, trade bot achieved 1.03% return running just 4 long-only strategies. Since we are running long-only strategies, the result is promising considering the Bitcoin return of -36% and Ethereum return of -54% in the same time period. There were, in the meantime, periods when the trade bot was not active because of new infrastructure deployment process, therefore the results are not totally comparable. However, in the first quarter of 2018, we increased our tested portfolio above $50,000 but below $100,000. In Q we plan to finish the new infrastructure and continue with the testing of new strategies. AI Trading Bot is a research-based project marked with an unpredictable timeline for achieving deployment phase. 10

11 FUTURE PLANS In the third quarter, we will migrate all market-making activities to the new trading bot. Initial tests have been promising, and we anticipate better reaction speed of the new trading bot to increase trade profitability. In addition, we expect to deploy market-making activities on 3-4 additional exchanges; two are completely new crypto exchanges where RIALTO.AI has been invited to provide liquidity at their launch. Algorithms are still continuously monitored, and certain parameters are also adjusted by our traders. Our objective is to extend the operations of the arbitrage and market-making activities to 24/7 by the end of the third quarter. In Q2 2018, we will be adding new products to our market-making activities. As mentioned in the last quarterly report, with the launch of CTIs (crypto traded indices, i.e. index trackers on crypto indices) we will take the role of designated market-maker and generate additional trading profits. 11

12 LEGAL DISCLAIMER: This document is merely a presentation of RIALTO.AI project development and is not legally binding in any way or form. Any documentation, technologies or products RIALTO.AI provides do not in any way or mean represent an investment consulting or other investment activities. RIALTO.AI is an IT company, developing complex algorithms for its users. RIALTO.AI is not liable for any possible deviations from developed technology or projections in this document on crypto currency markets. RIALTO.AI is not responsible for any possible damages arising from misinterpretation or poor interpretation of this or other RIALTO.AI documents. RIALTO. AI is not liable for any losses that may occur from using its products and does not in any way guarantee for profits. Algorithms and other RIALTO.AI products are in constant development and are not flawless. Use of RI- ALTO.AI products represent a certain level of risk due to (1) third-party exchanges, (2) legal risks, (3) blockchain technology, (4) theft, hacking and other loss, (5) transmission risks, (6) development failure, (7) cryptocurrency markets, (8) other anticipated risks, for which RIALTO.AI holds no liability. All Products are used at sole discretion of its users who are aware of the potential risks. The content and images of this paper are protected by copyright. Any unauthorized use, public distribution, reproduction, alteration and/or transmission in any form or by any means, without the prior written permission of RIALTO.AI, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. Research findings and developed economic projections in this paper are result of comprehensive and in-depth analysis of relevant economic factors of the RIALTO.AI team. 12