Hypotheses - Madjik. Magic data for financial traders. (Page 3)

Hypotheses

Madjik's data feeds are based on fundamental hypotheses about market dynamics. On this page we explain all our hypotheses. Many of the hypotheses are un-orthodox, unexpected, or may even feel strange, but they are all based on years of operating in crypto, stablecoin/EMT, fiat, stock/share, derivatives, etc markets. On the Strategy page, we also share some (but not all 😉) of our own trading strategies for your inspiration.

That trading volume you see? 70-95% is fake. Wash trading, self-dealing, and manufactured volume make reported data meaningless.

That trading volume you see? 70-95% is fake. Wash trading, self-dealing, and manufactured volume make reported data meaningless.

Hypothesis HY10035 That trading volume you see? 70-95% is fake. Wash trading, self-dealing, and manufactured volume make reported data meaningless. Trading hypothesis What traders get wrong False assumption: "Trading data is accurate." Truth: Trading data is fake. 70-95% of reported volume on many exchanges is wash trading. Problem

VaR requires stable mean, variance, and covariance. In crypto, all inputs are unreliable and change constantly. VaR is meaningless given fat tails.

VaR requires stable mean, variance, and covariance. In crypto, all inputs are unreliable and change constantly. VaR is meaningless given fat tails.

Hypothesis HY10034 VaR requires stable mean, variance, and covariance. In crypto, all inputs are unreliable and change constantly. VaR is meaningless given fat tails. Trading hypothesis What traders get wrong False assumption: "VaR based on mean, variance, covariance is useful." Truth: All VaR inputs are unreliable in crypto.

Cash is supposed to be risk-free and liquid. In crypto, "cash" is stablecoins with unknown backing that can halt redemptions at any time.

Cash is supposed to be risk-free and liquid. In crypto, "cash" is stablecoins with unknown backing that can halt redemptions at any time.

Hypothesis HY10033 Cash is supposed to be risk-free and liquid. In crypto, "cash" is stablecoins with unknown backing that can halt redemptions at any time. Trading hypothesis What traders get wrong False assumption: "Cash (stablecoins) is risk-free and liquid." Truth: Stablecoins have unknown (perhaps zero) intrinsic

Liquidation cascades aren't accidents - they're profit centers. Exchanges design leverage products to maximize liquidations. Your stop loss is their target.

Liquidation cascades aren't accidents - they're profit centers. Exchanges design leverage products to maximize liquidations. Your stop loss is their target.

Hypothesis HY10032 Liquidation cascades aren't accidents - they're profit centers. Exchanges design leverage products to maximize liquidations. Your stop loss is their target. Trading hypothesis What traders get wrong False assumption: "Minimal margin call risk. Leverage is safe if managed." Truth: Margin calls are

Traders use historical volatility to estimate future volatility. In crypto, this doesn't work. Volatility changes significantly and rapidly. Yesterday's vol tells you little about tomorrow.

Traders use historical volatility to estimate future volatility. In crypto, this doesn't work. Volatility changes significantly and rapidly. Yesterday's vol tells you little about tomorrow.

Hypothesis HY10031 Traders use historical volatility to estimate future volatility. In crypto, this doesn't work. Volatility changes significantly and rapidly. Yesterday's vol tells you little about tomorrow. Trading hypothesis What traders get wrong False assumption: "Historical volatility predicts future volatility." Truth: In crypto, volatility

BTC spot vs perpetual futures can diverge significantly. ETF premiums/discounts exist. Cross-exchange spreads are wide. These arbitrage opportunities shouldn't exist in efficient markets.

BTC spot vs perpetual futures can diverge significantly. ETF premiums/discounts exist. Cross-exchange spreads are wide. These arbitrage opportunities shouldn't exist in efficient markets.

Hypothesis HY10030 BTC spot vs perpetual futures can diverge significantly. ETF premiums/discounts exist. Cross-exchange spreads are wide. These arbitrage opportunities shouldn't exist in efficient markets. Trading hypothesis What traders get wrong False assumption: "Markets are efficient. Arbitrage is eliminated instantly." Truth: Massive arbitrage discrepancies exist

Crypto trades 24/7/365. But traditional finance uses daily snapshots. Stablecoin pegs reference daily rates. Someone is exploiting the gap between continuous crypto and discrete traditional pricing.

Crypto trades 24/7/365. But traditional finance uses daily snapshots. Stablecoin pegs reference daily rates. Someone is exploiting the gap between continuous crypto and discrete traditional pricing.

Hypothesis HY10029 Crypto trades 24/7/365. But traditional finance uses daily snapshots. Stablecoin pegs reference daily rates. Someone is exploiting the gap between continuous crypto and discrete traditional pricing. Trading hypothesis What traders get wrong False assumption: "24/7 trading is a feature, not a vulnerability." Truth:

Bitfinex, HTX/Huobi, Binance, KuCoin, etc are not transparent about operations, financials, or trading practices. What would be illegal in regulated markets is standard practice.

Bitfinex, HTX/Huobi, Binance, KuCoin, etc are not transparent about operations, financials, or trading practices. What would be illegal in regulated markets is standard practice.

Hypothesis HY10028 Bitfinex, HTX/Huobi, Binance, KuCoin, etc are not transparent about operations, financials, or trading practices. What would be illegal in regulated markets is standard practice. Trading hypothesis What traders get wrong False assumption: "Major exchanges are legitimate businesses." Truth: Major offshore exchanges are not transparent and

Money and tokens are 'created' with off-chain IOUs, then inserted into systems. Exchanges don't show all orders. Big trades happen off-chain. Hidden orders exist.

Money and tokens are 'created' with off-chain IOUs, then inserted into systems. Exchanges don't show all orders. Big trades happen off-chain. Hidden orders exist.

Hypothesis HY10027 Money and tokens are 'created' with off-chain IOUs, then inserted into systems. Exchanges don't show all orders. Big trades happen off-chain. Hidden orders exist. Trading hypothesis What traders get wrong False assumption: "I see the full market. Order books show real supply/demand.

When you see "BTC = $90,000", you're seeing BTC/USDT, not BTC/USD. Nobody actually pays 90,000 US Dollars - they pay Tether tokens.

When you see "BTC = $90,000", you're seeing BTC/USDT, not BTC/USD. Nobody actually pays 90,000 US Dollars - they pay Tether tokens.

Hypothesis HY10026 When you see "BTC = $90,000", you're seeing BTC/USDT, not BTC/USD. Nobody actually pays 90,000 US Dollars - they pay Tether tokens. Trading hypothesis What traders get wrong False assumption: "1 USDT = 1 USD, so prices are in dollars."

USDT will never trade much above $1 (why pay premium for a dollar?). But it can crash to $0 if Tether fails. The risk/reward is asymmetric: capped upside, unlimited downside.

USDT will never trade much above $1 (why pay premium for a dollar?). But it can crash to $0 if Tether fails. The risk/reward is asymmetric: capped upside, unlimited downside.

Hypothesis HY10025 USDT will never trade much above $1 (why pay premium for a dollar?). But it can crash to $0 if Tether fails. The risk/reward is asymmetric: capped upside, unlimited downside. Trading hypothesis What traders get wrong False assumption: "USDT is safe. It always trades at $1.

Strip away the hype: a blockchain is an append-only text file. You write "I have 1,000 tokens." You claim each is worth $1. The technology doesn't create value - belief does.

Strip away the hype: a blockchain is an append-only text file. You write "I have 1,000 tokens." You claim each is worth $1. The technology doesn't create value - belief does.

Hypothesis HY10024 Strip away the hype: a blockchain is an append-only text file. You write "I have 1,000 tokens." You claim each is worth $1. The technology doesn't create value - belief does. Trading hypothesis What traders get wrong False assumption: "Blockchain technology gives

BTC volatility is 3-5x higher than equities. A 1% error in volatility estimation means massive mispricing for crypto options.

BTC volatility is 3-5x higher than equities. A 1% error in volatility estimation means massive mispricing for crypto options.

Hypothesis HY10023 BTC volatility is 3-5x higher than equities. A 1% error in volatility estimation means massive mispricing for crypto options. Trading hypothesis What traders get wrong False assumption: "Standard volatility models work fine." Truth: Extreme volatility makes IV estimation critically important. Small errors = large mispricing. Problem for

You stake BTC or ETH and receive 8% yield. But BTC produces no cash flows. Where does the yield come from? If the underlying doesn't generate income, 'yield' can only come from new investors.

You stake BTC or ETH and receive 8% yield. But BTC produces no cash flows. Where does the yield come from? If the underlying doesn't generate income, 'yield' can only come from new investors.

Hypothesis HY10022 You stake BTC or ETH and receive 8% yield. But BTC produces no cash flows. Where does the yield come from? If the underlying doesn't generate income, 'yield' can only come from new investors. Trading hypothesis What traders get wrong False assumption: "Staking

Retail crypto traders all use the same strategies: DCA, RSI, moving averages. They copy each other using historical indicators that have no predictive power.

Retail crypto traders all use the same strategies: DCA, RSI, moving averages. They copy each other using historical indicators that have no predictive power.

Hypothesis HY10021 Retail crypto traders all use the same strategies: DCA, RSI, moving averages. They copy each other using historical indicators that have no predictive power. Trading hypothesis What traders get wrong False assumption: "Technical analysis works. These indicators work." Truth: Traders copy the same useless strategies based

Every trading model that looks great in backtests fails in live trading. Past performance doesn't predict future results - especially in crypto where market structure changes constantly.

Every trading model that looks great in backtests fails in live trading. Past performance doesn't predict future results - especially in crypto where market structure changes constantly.

Hypothesis HY10019 Every trading model that looks great in backtests fails in live trading. Past performance doesn't predict future results - especially in crypto where market structure changes constantly. Trading hypothesis What traders get wrong False assumption: "My model has great backtested returns." Truth: Back-tested models

You see billions in stablecoin volume and think it's retail trading. It's not. Over 90% is market makers, arbitrage bots, and institutional operations.

You see billions in stablecoin volume and think it's retail trading. It's not. Over 90% is market makers, arbitrage bots, and institutional operations.

Hypothesis HY10018 You see billions in stablecoin volume and think it's retail trading. It's not. Over 90% is market makers, arbitrage bots, and institutional operations. Trading hypothesis What traders get wrong False assumption: "High stablecoin volume indicates retail adoption." Truth: 90%+ of stablecoin volume

In traditional finance, 'Black Swan' events trigger 10% crashes. In crypto 10% is a normal Tuesday. Real Black Swans are 50%+ crashes that happen in hours.

In traditional finance, 'Black Swan' events trigger 10% crashes. In crypto 10% is a normal Tuesday. Real Black Swans are 50%+ crashes that happen in hours.

Hypothesis HY10017 In traditional finance, 'Black Swan' events trigger 10% crashes. In crypto 10% is a normal Tuesday. Real Black Swans are 50%+ crashes that happen in hours. Trading hypothesis What traders get wrong False assumption: "10% moves are extreme. I should panic/celebrate." Truth: 10%

Funding rate at 0.1% per 8 hours (109% annualized)? Reversal is coming. Extreme funding rates are one of the few predictive signals in crypto.

Funding rate at 0.1% per 8 hours (109% annualized)? Reversal is coming. Extreme funding rates are one of the few predictive signals in crypto.

Hypothesis HY10016 Funding rate at 0.1% per 8 hours (109% annualized)? Reversal is coming. Extreme funding rates are one of the few predictive signals in crypto. Trading hypothesis What traders get wrong False assumption: "Funding rates are just a cost of holding. They don't predict price.

Layer 2 solutions promise scaling. But bridges are the most hacked infrastructure in crypto. Ronin: $600M. Wormhole: $320M. Nomad: $190M.

Layer 2 solutions promise scaling. But bridges are the most hacked infrastructure in crypto. Ronin: $600M. Wormhole: $320M. Nomad: $190M.

Hypothesis HY10015 Layer 2 solutions promise scaling. But bridges are the most hacked infrastructure in crypto. Ronin: $600M. Wormhole: $320M. Nomad: $190M. Trading hypothesis What traders get wrong False assumption: "L2s are just faster Ethereum. Same security, more throughput." Truth: Bridges create new attack surfaces: massive TVL honeypots,

NFT floor price: $50,000. Actual bids: 3, totaling $2,000. NFT prices are fiction maintained by wash trading and illiquid markets.

NFT floor price: $50,000. Actual bids: 3, totaling $2,000. NFT prices are fiction maintained by wash trading and illiquid markets.

Hypothesis HY10014 NFT floor price: $50,000. Actual bids: 3, totaling $2,000. NFT prices are fiction maintained by wash trading and illiquid markets. Trading hypothesis What traders get wrong False assumption: "Floor price represents market value. I can sell at floor." Truth: NFT prices are manipulated through

Is crypto correlated to stocks? Yes and no. During normal times, correlation wanders. But during crashes, everything correlates to 1. The diversification benefit disappears exactly when you need it.

Is crypto correlated to stocks? Yes and no. During normal times, correlation wanders. But during crashes, everything correlates to 1. The diversification benefit disappears exactly when you need it.

Hypothesis HY10013 Is crypto correlated to stocks? Yes and no. During normal times, correlation wanders. But during crashes, everything correlates to 1. The diversification benefit disappears exactly when you need it. Trading hypothesis What traders get wrong False assumption: "Crypto is uncorrelated. It's digital gold / inflation hedge

You can see the future in crypto: token unlock schedules. When VC tokens unlock, they sell. When team tokens vest, they sell. These events are public, predictable, and ignored by most traders.

You can see the future in crypto: token unlock schedules. When VC tokens unlock, they sell. When team tokens vest, they sell. These events are public, predictable, and ignored by most traders.

Hypothesis HY10012 You can see the future in crypto: token unlock schedules. When VC tokens unlock, they sell. When team tokens vest, they sell. These events are public, predictable, and ignored by most traders. Trading hypothesis What traders get wrong False assumption: "Price is unpredictable. Fundamentals drive long-term value.

"Audited by [Big Name Firm]" is supposed to mean safety. But audited protocols get hacked constantly. Audits check code at a point in time. Upgrades, composability, and economic exploits bypass technical audits.

"Audited by [Big Name Firm]" is supposed to mean safety. But audited protocols get hacked constantly. Audits check code at a point in time. Upgrades, composability, and economic exploits bypass technical audits.

Hypothesis HY10011 "Audited by [Big Name Firm]" is supposed to mean safety. But audited protocols get hacked constantly. Audits check code at a point in time. Upgrades, composability, and economic exploits bypass technical audits. Trading hypothesis What traders get wrong False assumption: "This protocol was audited. My

Projects try to "comply with regulations." But crypto regulation is random, contradictory, and constantly changing. What's legal today is illegal tomorrow.

Projects try to "comply with regulations." But crypto regulation is random, contradictory, and constantly changing. What's legal today is illegal tomorrow.

Hypothesis HY10010 Projects try to "comply with regulations." But crypto regulation is random, contradictory, and constantly changing. What's legal today is illegal tomorrow. Trading hypothesis What traders get wrong False assumption: "Regulated projects are safe. Compliance reduces risk." Truth: Regulatory risk is unpredictable. Rules