Strategy · Relative Value
BTC/ETH PAIR TRADE
NeutralDefined riskIntermediate
Overview
Go long the asset you expect to outperform and short the other to neutralize broad crypto-market beta. Bets on the BTC/ETH ratio rather than the direction of either asset.
Setup
- 1.Pull the BTC/ETH ratio chart over the last 2 years and identify the historical range.
- 2.Form a thesis: ETH outperforms when DeFi activity rises; BTC outperforms in macro-uncertainty regimes.
- 3.Open equal-dollar positions: long the chosen leg, short the other (use perps or margin).
- 4.Set your exit target as a specific BTC/ETH ratio level, not a dollar P&L.
- 5.Monitor funding rates daily — if funding turns sharply against you, costs erode the edge.
- 6.Cap position size at 10% of capital; pair trades can still lose if both legs gap.
Max profit
Magnitude of ratio convergence × notional, minus funding and fees.
Max loss
Theoretically unlimited on the short leg if hedging breaks down; cap with stops.
Breakeven
Entry ratio plus accumulated funding/fees.
When to use
When BTC/ETH is at a historical extreme and you have a clear catalyst for reversion (ETF flow, network upgrade, macro shift).
When to avoid
During major liquidation events when correlations break and both legs move violently. Avoid on illiquid venues.