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Monday, October 3, 2022

Bitcoin (BTC) auto trading

Welcome to the Trading With A Bot channel. What we’re looking at here is a chart showing an apparent fluctuation in a price, where the price continues to go up and down, however, is staying consistently within a certain range.  This is a Wrapped Bitcoin WBTC and BTC crypto pair chart. In January 2019 a group called WBTC DAO  had introduced a concept of a Wrapped Bitcoin, an Ethereum token that’s backed 1:1 by Bitcoin.  

WBTC is an ERC20 token that represents Bitcoin (BTC) on the Ethereum blockchain.  There are multiple advantages of such a token for Ethereum wallets, dapps, and smart contracts and so it quickly gained acceptance and popularity. The chart you’re looking at here is showing an extreme close-up of the price.

If we were to zoom out the fluctuations we see become negligible.  After all, the WBTC should always be equal to 1 BTC based on how this token is designed.  This begs a question: Can the high-frequency trading bot such as Bitsgap take an advantage of these tiny fluctuations within the price range? After all, if the value of the Wrapped Bitcoin will always be equal to the actual Bitcoin, our investment will never lose value and we may possibly earn small gains from these fluctuations within the circa 1 Bitcoin range.

I am about to start a bot ranging from the bottom price of 0.995 to an upper price of 1.0005 with a total of  12 grids. Such a large number of grids in such a small price range will result in a tiny grid space percent. in this particular case equal to 0.05%. I will allocate circa 0.004 Bitcoin for this bot.  The bot is started now. You can see the 12 grids I’ve set up.  Green color lines indicate that these are buy orders that are ready to be executed.  

As of this moment, the bot has not bought any WBTC yet.  Let’s fast-forward now to see how this WBTCBTC bot with a given grid spacing will perform. Fast-forward by eight and a half days. Eight and a half days had passed now since I’ve started this bot on January 19th. Remember, my goal was to experiment with trading WBTC BTC pair via Bitsgap bot. I had set up a 12-grid  bot within a price range from 0.995 to 1.0005, leaving only 0.05% as a grid step percentage.

And so with this setup, since 8.5 days of the bots operations, it had managed 175 transactions.  Look at the chart above – the green lines show the grids and price levels in which the bot will buy WBTC for BTC and the red lines show the price levels at which the bot will sell WBTC  back for BTC, making a tiny profit with each transaction.

The green and red marks on the chart indicate the Buy and Sell transactions that took place during that time. As discussed earlier, the price of the Wrapped Bitcoin (WBTC) should be equal exactly to the price of Bitcoin, i.e. 1 WBTC should be equal to exactly 1 BTC. But as you can also see, there are occasional spikes in the prices. These are exceptional opportunities to make an extra profit. 

You can take advantage of them only with an automated bot, which quickly sets new Buy and  Sell orders when the price is fluctuating. Still, however, these fluctuations are rare and most of the time the price of the WBTCBTC pair is within a narrow range.  During such time there may be little or no transactions at all. The bot is just waiting.  You can see now the result of my experiment. The price does fluctuate sufficiently to make a small profit while staying within a predictable range to make this trading safe.

In other words,  we can hold on to our Bitcoin by doing these occasional trading transactions with a Wrapped  Bitcoin and earning a small percentage of profit. Here, again, you can see that from 22nd to 24th  there were no transactions at all, but there were plenty of the Buys and Sells before and after.  In total, 175 transactions within a period of 8.5 days the bot had generated 0.51%  of the profit.


Personally, I think this is an excellent result considering that there is very little risk involved in trading this pair and that I am “holding” my Bitcoin. An important question that remains is the following: Have I optimized my grids to reach the most effective outcome?  For this bot, as an experiment, I have only invested $144 worth of Bitcoin. If I had placed more money into this bot, I could make the place between the grids even smaller. But would it be worth, it considering that my exchange is taking a small fee for each transaction? Let’s look into the details.

Binance is charting me 30 satoshis for each transaction. Here as I scroll down to the very first Buy, my total bot profit is -30 satoshi. My second transaction also happens to be a Buy,  so now I am in the negative 60 satoshis. But then the price went up, the bot had made a sale and a  profit of 86 satoshi. I am still in the red, but not for long. The profit from the fourth Sell is enough to make my overall bot profit positive. From now on the bot profit will only continue to grow.

The 86 satoshi of profit from a Buy and Sell pair is bigger than 30 + 30 satoshi I pay in fees. And even though these are extremely tiny amounts it is the predictability and consistency of this bot that makes it attractive to me. If the fees were lower, which is possible on Binance depending on our VIP level, the profit percentage and the amount would be even larger. My bot profit was over 2,000 satoshi and the overall investment had grown by 0.38%.  

Another way I look at auto-trading this particular crypto pair is as if I were to receive interest for holding my Bitcoin: 0.35% for eight-and-a-half days is a reasonable interest rate. Here, the Backtest statistics are producing a similar number: 0.31% in 7 days and 1.33%  per month. It is not compound, unfortunately, but would still add up to over 15% per year. I think that is all I can share with you in this video about auto trading WBTC/BTC.  


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