Investment Strategies

Definitions

Investment Strategy: An Investment Strategy systematically answers one or all of the following questions in a fully automatic, data-driven, algorithmic way without any human interference, especially that of the Firm’s stakeholders:

  • Market Timing:
    • When should a position in the crypto market be opened?
    • When should a position in the crypto market be closed?
    • What type of market position should be opened and/or closed (i.e., a long or a short position)
  • Asset Selection: Regarding which crypto asset should a position be opened and/or closed?

Long Position: A long position aims to profit from rising prices of the crypto asset market or selected crypto assets.

Short Position: A short position aims to profit from falling prices of the crypto asset market or selected crypto assets. The most straightforward way to open a short position would be to borrow a selected asset (for a fee) and then sell it on an exchange. At a later point in time, the asset would be bought back on an exchange and returned to the lender. The expectation is that the asset would be bought back at a lower price than the price at which the asset was sold. The potential profit would then be the price difference between the price at which the asset was sold and the price at which the asset was bought back (ex fees and tax).

Types of Investment Recommendations generated by the Firm’s Investment Strategies:

Open long: Recommendation to invest in the crypto market or to buy particular crypto assets based on the current sentiment and market conditions (i.e., open a long position).

Close long: Recommendation to exit the crypto market or sell particular crypto assets based on the current sentiment and market conditions (i.e., close a long position).

Open short: Recommendation to short crypto assets in general or to short particular crypto assets based on the current sentiment and market conditions (i.e., open a short position).

Close short: Recommendation to close an open short position based on the current sentiment and market conditions. That is, an Investment Strategy recommends to buy back one or more crypto assets or sell the instrument(s) used to implement the short position.

Increase weight: Recommendation to increase the portfolio allocation of a specific crypto asset (relative to the backtested allocation) towards a target weight, based on positive market indicators or sentiment of that asset (relative to other crypto assets).

Decrease weight: Recommendation to decrease the portfolio allocation of a specific crypto asset (relative to the backtested allocation) towards a target weight, based on negative market indicators or sentiment of that asset (relative to other crypto assets).

Increase leverage: Recommendation to consider leveraged financial instruments to increase a position’s market exposure beyond the standard capital allocation, reflecting high conviction based on market indicators or sentiment, but involving significantly more risk.

Decrease leverage: Recommendation to reduce the leverage of a position, thereby lowering amplified market risk and moving overall exposure closer to the unleveraged capital allocation, often for risk control or reduced conviction based on market indicators or sentiment.

Rebalance: Recommendation to adjust the allocations of some but potentially all portfolio positions to align each asset’s allocation with its specified target weight, typically to correct portfolio drift.

Open long, open short, increase weight, and decrease weight recommendations may include a target weight recommendation (e.g., 0.2 or 20% target portfolio weight) and a leverage factor recommendation (e.g., 1 – meaning unleveraged, or >1 for leveraged positions). Note that the target weight may differ from the actual weight in the portfolio due to many factors such as price developments, transaction costs and order size limitations.

Identity of the investment recommendation Provider

Klein Data Research UG (haftungsbeschränkt) is an institution-independent developer of investment strategies and provider of investment recommendations.

Investment recommendations provided by Klein Data Research UG (haftungsbeschränkt) are generated automatically by quantitative, scientifically grounded, fully data-driven investment strategies developed by Dr. Achim Klein, Head of Quantitative Research at Klein Data Research UG (haftungsbeschränkt), and Lyubomir Kirilov, Quantitative Analyst and Business Developer at Klein Data Research UG (haftungsbeschränkt).

Klein Data Research UG (haftungsbeschränkt) currently offers access to the following investment strategies:

  • Safe Start (aka Bull Market Compass)
  • Adaptive Edge
  • Aggressive Growth (aka AltcoinWave.AI)

Safe Start (aka Bull Market Compass)

Safe Start (aka Bull Market Compass) is a long-only investment strategy that provides investment recommendations about timing the general crypto-asset market. In the cases where crypto-assets such as Bitcoin are mentioned in communication materials related to the Safe Start investment strategy or are mentioned in communication materials generated automatically by the Safe Start investment strategy, investors must keep in mind that these are only examples and should not be considered an investment advice or an investment recommendation.

An investment recommendation to buy is issued when the investment system observes crypto market sentiment that implies a positive crypto market outlook and the crypto market exhibits positive price momentum. The assumption underlying the buy signal is that a bull market is ahead.

An investment recommendation to sell is issued when the investment system observes crypto market sentiment that implies a negative crypto market outlook and the crypto market exhibits negative price momentum. The assumption underlying the sell signal is that a bear market is ahead.

The investment strategy is evaluated hourly.

The following table provides a summary of any changes in the valuation, methodology or underlying assumptions of the investment strategy since the strategy has been released:

Adaptive Edge

Adaptive Edge is a long-short investment strategy that provides investment recommendations about selected financial instruments listed on crypto-asset exchanges.

The strategy intelligently identifies market regimes and adjusts its investment recommendations to the identified regime. The strategy distinguishes between 4 market regimes.

  • Early Stage Bull Market – the investment strategy may generate investment recommendations about crypto-assets with large market capitalization, which are less volatile, with a focus on Bitcoin.
  • Bull Market – the investment strategy may generate investment recommendations to buy crypto-assets with smaller market capitalization than Bitcoin that are still part of the top-30 crypto-assets per market capitalization during the time of issuing an investment recommendation. The investment strategy may recommend a full portfolio of crypto-assets that tend to outperform crypto-assets with larger market capitalization, but may exhibit higher volatility. The investment aims to exchange the portfolio only a few times during a single bull market.
  • Bear Market – the investment strategy may generate investment recommendations about short selling specific crypto-assets, with a strong focus on Bitcoin.
  • Unclear – the investment strategy may generate investment recommendations about holding cash or investing in cash equivalents.

An investment recommendation to buy a certain crypto-asset is based on a positive absolute price momentum of the crypto-asset and a relative price momentum, which is one of the strongest among the crypto-assets observed in the set of crypto-assets in the top-30 per market capitalization as given during the time of issuance of the investment recommendation. Further, an investment recommendation to buy a crypto-assets assumes that the relative and absolute positive price momentum will continue to uphold over the weeks following the issuance of the investment recommendation.

An investment recommendation to sell a certain crypto-asset implies that the relative price momentum of at least one of the crypto-assets, which the investment strategy tracks, is stronger. Furthermore, a built-in virtual stop loss of the investment strategy regarding the crypto-assets recommended for selling may have been hit and the assumption would be that implementing the recommendation can help in limiting losses and thus preserve capital.

An investment recommendation to open a short position with respect to a certain crypto-asset is generated in case the investment system observes crypto market sentiment and absolute price momentum that imply a bleak outlook for the crypto market and in particular for the recommended crypto-asset.

An investment recommendation to close a short position with respect to a certain crypto-asset is issued in case the assumptions to open the short position have been invalidated or in case a built-in (virtual) stop loss regarding the position has been hit.

The investment strategy is evaluated daily.

The following table provides a summary of any changes in the valuation, methodology or underlying assumptions of the investment strategy since the strategy has been released:

Aggressive Growth (aka AltcoinWave.AI)

Aggressive Growth (aka AltcoinWave.AI) is a long-short investment strategy that provides investment recommendations about selected financial instruments listed on crypto-asset exchanges. The strategy intelligently identifies market regimes and adjusts its investment recommendations to the identified regime.

Compared to the Adaptive Edge investment strategy, Aggressive Growth may invest in more volatile crypto-assets with smaller market capitalization that the strategy attributes a higher return potential. Furthermore, the strategy may generate investment recommendations more frequently, several times a week, with a recommended time to react of one day.

The investment strategy distinguishes between 4 market regimes.

  • Early Stage Bull Market – the investment strategy may generate investment recommendations about crypto-assets with large market capitalization, which are less volatile.
  • Bull Market – the investment strategy may generate investment recommendations about crypto-assets with smaller market capitalization that tend to outperform crypto-assets with larger market capitalization, but may exhibit higher volatility.
  • Bear Market – the investment strategy may generate investment recommendations about short selling specific crypto-assets, with a focus on Bitcoin.
  • Unclear – the investment strategy may generate investment recommendations about holding cash or investing in cash equivalents.

An investment recommendation to buy a certain crypto-asset implies the assumption that the asset observes positive absolute price momentum and its short-term relative price momentum is one of the most favorable among the crypto-assets observed in a certain set of crypto-assets (as specified in the table of the investment strategies’ subversions). Further, an investment recommendation to buy a crypto-asset implies the assumption that the relative and absolute positive price momentum will continue to uphold for at least the next days following the issuance of the investment recommendation.

An investment recommendation to sell a certain crypto-asset implies the assumption that the short-term relative price momentum of at least one of the crypto-assets, which the investment strategy observes, is more favorable. Furthermore, a built-in virtual stop loss of the investment strategy regarding the crypto-asset recommended for selling may have been hit and the assumption would be that implementing the recommendation can help in limiting losses and thus preserve capital.

An investment recommendation to open a short position with respect to a certain crypto-asset is issued in case the investment system observes crypto market sentiment and absolute price momentum that imply a bleak outlook for the crypto market and in particular for the recommended crypto-asset ~~to short sell~~.

An investment recommendation to close a short position with respect to a certain crypto-asset is issued in case the assumptions to open the short position have been invalidated or in case a built-in (virtual) stop loss regarding the position has been hit.

The investment strategy is evaluated daily.

The investment strategy has the following variants that use different universes of crypto-assets that are available for selection to the strategy. Crypto-assets selected by one subversion are likely to be available on other crypto exchanges as well, although each exchange has a specific list of traded assets. Within the European Economic Area (EEA), Klein Data Research UG (haftungsbeschränkt) offers only access to investment strategies that are MICA-compliant and consider only crypto-assets for investing that are MICA-compliant.

The following table provides a summary of any changes in the valuation, methodology or underlying assumptions of the investment strategy since the strategy has been released:

General Characteristics of Investment Strategies

This section refers to characteristics that apply to all investment strategies offered on this website by Klein Data Research UG (haftungsbeschränkt).

Summary of the Basis of the Methodology to Evaluate a Financial Instrument

The crypto-asset market is evaluated for investment opportunities using a custom measure of the investors’ sentiment, derived automatically and systematically from crypto-asset-related online media. While individual online articles and opinions expressed in these articles may carry biases and might be wrong, by aggregating sentiment from hundreds of articles and sources, our fully automated approach ensures a comprehensive and balanced reflection of the prevailing market sentiment. Furthermore, for evaluating the crypto-asset market, factors such as price momentum derived from market data (e.g., OHLCV data) are used.

Individual crypto-assets are evaluated for investment recommendations based on the overall evaluation of the crypto-asset market and individual factors derived from the market data of the crypto-asset. Such factors include price momentum. Methods for evaluation include econometric ones and technical indicators.

An investment recommendation to buy a certain crypto-asset implies the assumption that it observes positive, uptrending absolute price momentum and its relative price momentum is one of the strongest among the crypto-assets observed in a certain set of crypto-assets (as specified per investment strategy). Further, an investment recommendation to buy a crypto-asset assumes that the relative and absolute relative and absolute positive price momentum will continue to uphold for at least the next days following the issuance of the investment recommendation.

An investment recommendation to sell a certain crypto-asset implies the assumption that the relative price momentum of at least one of the crypto-assets, which the investment strategy tracks, is stronger. Furthermore, a built-in virtual stop loss of the investment strategy regarding the crypto-asset recommended for selling may have been hit and the assumption would be that implementing the recommendation can help in limiting losses and thus preserve capital.

An investment recommendation to open a short position with respect to a certain crypto-asset is issued in case the investment system observes crypto market sentiment and absolute price momentum that imply a bleak outlook for the crypto market and in particular for the recommended crypto-asset to short sell.

An investment recommendation to close a short position with respect to a certain crypto-asset is issued in case the assumptions to open the short position have been invalidated or in case a built-in (virtual) stop loss regarding the position has been hit.

Price Targets

The investment strategies do not generate or provide any price targets. Therefore none of the investment recommendations include any price targets.

Validity Duration of Investment Recommendations

Each investment recommendation is valid until a new investment recommendation about the financial instrument is provided. The minimum validity time period of an investment recommendation is the frequency of evaluation of the investment strategy as described above, i.e, 1 hour or 1 day. In practice, the actual validity time period might stretch over several weeks or even months.

Length of Investments

The holding period of a financial instrument recommended by one of the investment strategies may vary greatly based on the investment strategy, the market regime, or the financial instrument. The minimum holding period of a financial instrument is given by the frequency of evaluation of the investment strategy as described above, i.e. 1 hour or 1 day. However, the rough estimate of the *average* holding period of a crypto-asset recommended by on of the investment strategies is given as follows

– Safe Start: 2 months during bull markets,
– Adaptive Edge: 1 month during bull markets,
– Aggressive Growth : 14 days during bull markets.

Stop Losses

The investment recommendations do not generate, include or provide any explicit publicly communicated stop-loss targets. The investment strategies may, however, use internal (i.e., virtual, not to be submitted to an exchange) stop-losses. These stop-losses are dynamically adjusted during each evaluation period of the respective investment strategy. When an internal stop-loss is triggered, the investment strategies may generate an investment recommendation about closing a position (e.g., selling a financial instrument previously recommended for buying).

Quality Assurance

All sources of information and market data used by the investment strategies have been carefully selected and processed by Dr. Achim Klein and Lyubomir Kirilov to ensure high quality of the investment recommendations.

General Risk Warnings

These general risk warnings apply to all investment strategies developed and offered by Klein Data Research UG (haftungsbeschränkt).

Beware that past trading performance may be in parts or its entirety hypothetical, i.e., backtested. Past trading performance is not indicative of future results, which may vary. There is no guarantee, express or implied, that return or volatility objectives will be achieved. That is, realized returns and realized volatility might be substantially higher or lower than expected. There is a risk of substantial loss associated with trading of any financial instrument or crypto-asset. When trading, investors could lose the full balance of their account. It is possible to lose even more than the initial deposit, especially when trading futures or when trading on margin.

Margin trading involves the risk of a margin call, which means that you may be required, at short notice, to deposit with your broker further substantial amounts of money to maintain your position. If you fail to provide those additional funds within the required time, your position may be liquidated. You will be liable for any shortfall in your account resulting from that liquidation.
When trading crypto-assets, further risks may apply. Crypto-assets may be subject to very high volatility and their price may rise or fall very quickly over a wide range. Furthermore, crypto-assets and crypto exchanges may be subject to cyber criminality such as hacking of crypto exchanges. In such cases, crypto-assets not secured in a cold wallet may be stolen from users’ accounts at a crypto exchange.

Investing in crypto-assets with small market capitalization may be associated with higher volatility and higher risk for investors compared to crypto-assets with large market capitalization. Additionally, crypto-assets with small market capitalization may suffer from liquidity shortages where an investor may not be able to timely open or close a position.
Beware that additional risks may apply on trading or investing, not listed herein.

Conflicts of Interests

Klein Data Research UG (haftungsbeschränkt) primary goal is to provide its clients with valuable and accurate information that can help them make better-informed decisions. In this regard Klein Data Research UG (haftungsbeschränkt) is dedicated to maintaining the highest level of integrity and objectivity with all of its investment recommendations.

Klein Data Research UG (haftungsbeschränkt) and the people who work at Klein Data Research UG (haftungsbeschränkt) do not receive compensation, gifts, or incentives in exchange for providing investment recommendations about a **specific** financial instrument. However, Klein Data Research UG (haftungsbeschränkt) may receive compensation for investment recommendations it provides when a natural person or legal entity purchases, subscribes to, follows, or distributes investment recommendations generated by one of Klein Data Research UG (haftungsbeschränkt)’s investment strategies.

Investment recommendations generated by one of Klein Data Research UG (haftungsbeschränkt)’s investment strategies may also be distributed or published by a third party on a third-party platform under a different name. In such cases Klein Data Research UG (haftungsbeschränkt) may receive a compensation based on the revenue generated by the investment recommendations on these third-party platforms.

Klein Data Research UG (haftungsbeschränkt), the people who work at Klein Data Research UG (haftungsbeschränkt) or people and legal entities who are related to Klein Data Research UG (haftungsbeschränkt), respectively who have a personal or business relationship with Klein Data Research UG (haftungsbeschränkt), may own or might invest in financial instruments, which were object of one of Klein Data Research UG (haftungsbeschränkt) investment recommendations. However, no person or legal entity has direct influence on the investment recommendations, and no person or legal entity is made aware of the investment recommendations prior to everyone else including people working at or related to Klein Data Research UG (haftungsbeschränkt) as investment recommendations are generated and distributed automatically by independent investment strategies, which do not take into account the investment decisions or gut feel of the aforementioned people and legal entities.

If one has any concerns about potential conflicts of interest or the credibility of Klein Data Research UG (haftungsbeschränkt)’s investment recommendations, please reach out to [email protected].