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 When comparing crypto markets in Q to Q1 2018, it almost seems like last quarter has been extremely quiet. Nevertheless, the total market capitalization of cryptocurrencies has risen approximately 50% during April 2018 and was followed by a comparable pullback in the following two months. Trading volume on the crypto markets remained low and decreased even further after April, with the correlation between market direction and market liquidity remaining strong. During Q2 our market-making team added two additional exchanges to the deployment environment. Furthermore, we have extensively focused on the integration of the trading systems to the new platform upgrade currently in development. AI Trading Bot has further been tested with additional trading strategies. As we have communicated, the option to deposit funds to AI Trading Bot is available since the beginning of Q3. The additional algorithm that will be deployed in Q4 will offer platform users broader selection of trading styles differentiated by risk profile and trading frequency. Our focus for Q3 with respect to trading activities will be on adding additional exchanges to market-making activities and increasing market-making uptime. Even though RIALTO.AI successfully launched its platform in Q1 2018, we are planning a major upgrade of the platform that will be launched already at the start of Q this will include additional products and functionalities available to the platform users. In addition to three trading algorithms, we will introduce Themes Trading that will offer automated purchase of a thematic selection of cryptocurrencies via a single click. Furthermore, proprietary trading indicators that are used for trading will be periodically released and accessible also on the platform. We will be communicating the progress and all new developments through our standard channels. 3

4 MARKET REPORT In Q2 2018, we witnessed some stabilization in the market capitalization of all of the cryptocurrencies. The market capitalization of all of the cryptocurrencies, which reached its maximum of 831 billion USD on January 7, 2018 (coinmarketcap.com), and dropped to 254 billion on March 30, 2018, was steadily rising in the first half of Q2, reaching almost 470 billion USD on May 5, The second half of the second quarter was mostly bearish. The market capitalization of all of the cryptocurrencies was approximately 254,5 billion USD, on the 30 June 2018, when the quarter ended, representing negligible 0,2% market capitalization increase throughout the period. Global Charts / Total Market Capitalization [Chart: market capitalization and 24h traded volume in Q2 2018] During the quarter, the cryptocurrency market was under the influence of both, positive and negative news. Some of the most important are listed below: April 2, 2018: Sinochem Pilots Blockchain for Gasoline Export Shipment Xinhua The branch of the Chinese state corporation Sinochem working in the oil and gas industry performed the first delivery of gasoline from China to Singapore based exclusively on blockchain technology. April 5, 2018: Fed Sure that Cryptos are No Threat A member of the Board of Governors of the Federal Reserve System, Lael Brainard, announced that cryptocurrencies do not currently pose a threat to the financial system of the US. April 9, 2018: $1.6 Billion Chinese Fund Launches in Support of Blockchain Startups Xiongan Global Blockchain Innovation Fund will invest in promising Chinese startups 4

5 working with blockchain technology. The administration of the Yuhang District was one of the founders of the Fund. May 3, 2018: CFTC Officials Want Close Cooperation With SEC on Crypto Rules Regulators have already participated in a number of cases against bad faith representatives of the crypto industry, however, due to the market s vigorous development this cooperation must be placed on an on-going basis, the CFTC believes. May 7, 2018: Japan s FSA Sets New Crypto Regulatory Paradigm The Financial Services Agency announced the preparation of stricter normative limitations to prevent mass attacks on cryptocurrency exchanges such as the attack on Coincheck in January. May 22, 2018: Japan s Tokyo-based Bank Mitsubishi UJF Testing an In-House Digital Currency MUJF Coin As the largest operating bank in Japan, Mitsubishi UFJ Financial Group will be the first such financial institution to have its own digital currency, which will be used by 100,000 clients of MUFG s retail bank. June 9, 2018: Swiss Bank Offers Cryptocurrency Business Accounts Hypothekarbank Lenzburg was the first in the country to offer this service to the cryptocurrency community. The bank intends to promote cooperation in this area but has not forgotten the high risk of money laundering in the industry. June 12, 2018: South Korea to Regulate Cryptocurrency Exchanges Just Like Commercial Banks The regulator proposed a new draft law with stricter requirements on financial organizations. June 22, 2018: Bitcoin in Danger of Falling Below Critical $6,000 Level on Worries Over Exchanges Bitcoin has hit a new low for

6 In the next table, we can observe the price change for the 10 largest cryptocurrencies by their market capitalization. Although the majority of cryptocurrencies experienced a slight decrease in price, the price of ETH, BCH, EOS, and TRON increased. [source: 6

7 PROGRESS REPORT During Q RIALTO.AI platform has become fully operational and we were pleased to see that our XRL token holders have registered and committed their funds to our market-making bot. As mentioned before, in Q3 market-making bot will be joined by AI Trading Bot. ARBITRAGE AND MARKET MAKING In Q2 of 2018, RIALTO.AI performed market-making activities on 8 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), Bitcoin Cash (BCH). The most traded currency pairs in Q2 are presented in the table below (the total number of trades is 35,817, of which 15,742 were made with market making and 20,075 while hedging those trades). The number of total trades remained approximately unchanged from Q1 2018, while the number of market-making trades actually even increase by 20%. Nevertheless, the increase in the number of trades was a result of more aggressive quoting and spreads decreased significantly resulting in lower profitability. Distribution of trades in Q Distribution of trades in Q % XRP/BTC 20% ETH/BTC 36% BTC/USD ETH/BTC 41% ZEC/BTC BCH/BTC 13% XRP/USD BCH/BTC 11% XRP/BTC LTC/BTC 7% 11% 11% REST 9% 9% 10% REST In this quarter we observed less concentrated trading compared to the previous quarter. The key reason for this is that there were no large movements of individual currency pairs and cryptocurrencies mostly moved with higher correlations. The most-traded cryptocurrency was ETH against BTC, while XRP against BTC highest trading cryptocurrency pair in the previous quarter was only fourth. As mentioned before, more aggressive quoting leading to lower profit per trade caused a decrease in overall profitability. 7

8 [Table: summary of RIALTO.AI Market Making trades and profits in Q2 2018] Next table shows a profit of market-making operations in relation to the value of Digital Asset Pool (DAP) used for trading in this quarter. A simple projection is also calculated to annualize the data. Profitability of market-making operations decreased even further in Q2. While in Q the projected annualized profitability of DAP reached almost 18%, it decreased below 10% in Q As mentioned, falling liquidity and also decreased volatility are the key reasons for the worst results. In the next chart, we can observe that overall profit is strongly correlated to the traded volume on markets as we have already shown in our last report. Comparing the aggregated volume in BTC/USD to Q1 2018, the volume of this (most traded) cryptocurrencies pair has decreased more than 65%. Aggregated volume (BTC/USD, in musd) vs market-making profitability [Chart: Aggregated volume of trading (data from cryptocompare.com) compared with Rialto MM profit] Volume (in musd) Period profit 8

9 DAP, 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 in market-making activities were actually increasing through the quarter. Again, the falling prices of individual cryptocurrencies compared to USD caused the total DAP to decrease in value. DAP - USD value by currencies BTC XRP ETH USD BCH EUR Rest (EOS, ZEC, DASH, XMR, LTC, BTG) [Chart: USD Value of funds in DAP for Rialto Market Making] 9

10 AI TRADING BOT Since July, the additional trading algorithm is available for use on RIALTO.AI trading platform. From December 1, 2017, to June 30, 2018, trade bot outperformed both market return and bitcoin return by achieving 1,19 percent return running 3 long-only strategies and one long/short strategy which was included in May In the same time period, Bitcoin return was -46 percent while Ethereum s value declined for -5,4 percent. The second algorithm can solely be implemented on the most liquid trading pairs and is currently deployed on BTC and ETH fiat pairs. The maximum performance drawdown amounted to 18 percent while drawdown in Bitcoin and Ethereum was over 50 percent. The algorithm is designed to minimize performance volatility and provide risk-optimized returns. We constantly revise and update the trading strategies and parameters of the algorithm. Additional short strategies will be implemented to further reduce the volatility in 2018 performance. 10

11 FUTURE PLANS Successful migration to new market-making trading bot will enable us to add new exchanges to our market-making activities much faster in the future. Already in the Q3 2018, we expect to add three additional exchanges and by the end of Q4, we foresee to have at least 15 exchanges included. Furthermore, we have started discussions with these exchanges and begun necessary preparations. One of the exchanges is completely new and regulated crypto exchange with the expected launch in September. Additionally, the new market-making trading bot is the first step to conducting market-making activities on a continuous basis. As already mentioned in our last quarterly report, we aim to extend market-making activities to 24/7 by the end of Q For AI Trading bot, in the second half of 2018, we are planning to integrate more long/short strategies to optimize risk-return ratio and further implement additional machine learning techniques and thus take a step toward autonomous AI trading. We will also focus on upgrading our multi-strategy back-testing environment where we will evaluate all tested trading systems. Until the end of Q3 2018, we also want to offer one more algorithm with a different risk profile, so the users will be able to choose the most suitable one according to their preferences. THEMES TRADING We have started with the development of additional products that will be launched together with the platform upgrade in Q4. During May and June, testing of Themes trading product was initiated. Themes Trading will enable users to purchase a thematic selection of cryptocurrencies with a single click. Users will have the possibility to achieve superior potential return simply by choosing a favorite balanced selection of cryptocurrencies. Example of the themes trading is dapp tokens algorithm that instantly purchases equally weighted distribution of top 5 cryptocurrencies used in decentralized applications (ETH, EOS, NEO, ADA QTUM). At the time, we are testing the platform on three themed selection of cryptocurrencies with a total of 15 cryptocurrencies and storage supported. CUSTOM INDICATORS Indicators that we use in trading strategies are a very important factor in achieving a competitive edge. Data used for calculation of indicators is proprietary and retrieved directly from exchanges and blockchain networks. We use the combination of different indicators to support automated decision-making process in a single algorithm. Some indicators are related to general market information while others are specifically tied to a single cryptocurrency. One type of the indicators that will be accessible to users after the platform upgrade is, for example, breadth indicators, which are often used in combination with other indicators to confirm trends. Buying power index is one example of a breadth indicator which tells us how patient are 11

12 the market participants in the market. Higher buying power index means that market participants are willing to pay the bid-ask spread to get exposure to cryptocurrency. This indicator must be used in the context of a larger time because it can be used as a momentum or contrarian indicator. The platform is planned to be periodically updated with different types of indicators that we use, such as market and cryptocurrency sentiments derived from social media information, and also indicators derived from blockchain network data and distribution of token holding addresses. 12

13 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. 13