Disclosure: The views and opinions expressed here belong solely to the author and do not represent the views and opinions of crypto.news’ editorial.
Crypto markets are renowned for their unpredictable peaks and troughs, such as prices skyrocketing overnight or plunging just as quickly. This leaves traders of all backgrounds—retail investors, hedge funds, and institutions—on edge. Amid this turbulence, pairs trading is a unique strategy for those seeking consistency without giving up the potential for meaningful returns.
You might also like: Beyond Bitcoin: What to expect from tokenized assets in 2025 | Opinion
At its core, pairs trading involves choosing two crypto assets that have a solid statistical relationship, then taking a long position in the underpriced asset while simultaneously shorting the overpriced one. Rather than banking on a hunch that one coin will go “to the moon,” pairs trading zeroes in on how two assets behave relative to each other. If they diverge too much from their historical pattern, the strategy aims to profit when they revert to it. This approach can generate returns whether markets surge or slump, making it appealing to both large-scale funds and individual investors.
Meaningful connections between crypto pairs
Not all price movements that look in sync are anchored. Many assets move together in bullish or bearish markets, only to break apart when conditions shift. That’s why robust data science—namely “cointegration” tests—provides a higher degree of certainty. Cointegration goes beyond superficial correlation to verify that two assets share a meaningful pull toward each other over time.
By analyzing accurate, comprehensive data and running cointegration tests, traders gain confidence in identifying these deeper pair relationships. If the spread between two cointegrated assets drifts too far from its average, the strategy is to buy the underpriced one and short the overpriced one. Once the prices converge, the profit results from that realignment rather than a bet on the overall market trend.
Avoiding guesswork
Effective pairs trading depends on robust, high-quality data. Research should focus on crypto pairs trading and how it illustrates granular, reliable market information forms as the core of this approach.
Whether it’s historical pricing for backtesting, real-time market feeds for spotting quick deviations, or on-chain metrics for deeper insight; dependable data is crucial for a variety of areas such as Cointegration Tests, Mean Revision and Z-Scores, and Risk Management. This>The transition from research to real-world trades
Entering a pairs trade typically requires a trading venue that supports both long and short positions. Before committing capital, it’s best to backtest using reliable historical data to see how the strategy might have performed during different market cycles, whether in a prolonged bear market or a rapid bull run. Starting with smaller trades helps manage fees, slippage, and any surprises that might arise.
The relationship between two coins can shift over time, so regular data checks are crucial. If the pair is no longer cointegrated, or if market fundamentals have changed drastically, it may be time to look for new opportunities.
What are the next steps?
As the crypto landscape matures, more traders and institutions are pivoting from pure speculation to>
Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.
Read more: AI and crypto will come together in this Bitcoin cycle | Opinion
Michael Marshall
Michael Marshall is the head of research at Amberdata. He leads pioneering research initiatives at the forefront of blockchain and cryptocurrency analytics. Mike is a seasoned quantitative analyst with a 15-year track record in developing AI-driven trading algorithms and pioneering proprietary cryptocurrency strategies. His expertise spans quantitative trading and risk management, where he has excelled in harnessing analytical skills to navigate complex financial markets.
