Turn-of-the-candle effect in bitcoin returns

Area of Science:

• Quantitative Finance
• Cryptocurrency Markets
• Algorithmic Trading

Background:

• Bitcoin markets exhibit complex dynamics influencing trading strategies.
• Understanding intraday patterns is crucial for efficient cryptocurrency trading.

Purpose of the Study:

• To identify and analyze statistically significant intraday anomalies in Bitcoin markets.
• To investigate the potential profitability of exploiting identified market inefficiencies.

Main Methods:

• Analysis of high-frequency Bitcoin trading data.
• Application of quantile regression and TGARCH-M models.
• In-sample and out-of-sample testing of trading strategies.

Main Results:

• A significant intraday anomaly, termed the "turn-of-the-candle" effect, was discovered.
• Positive returns (0.58 bps/min) concentrate at 15-minute intervals, while other minutes show negative returns.
• A high-frequency trading strategy exploiting this anomaly can be profitable with a $5,000 investment.

Conclusions:

• The "turn-of-the-candle" anomaly in Bitcoin markets is statistically and economically significant.
• This anomaly may be linked to algorithmic trading strategies reacting to 15-minute candle data.
• The findings enhance the understanding of adaptive market efficiency in cryptocurrency markets.