CCE Cryptocurrency Trading & Investment 4 — Questions and Answers
Question 1: What does the Sharpe ratio measure in a cryptocurrency portfolio?
- Total return relative to the initial investment
- Risk-adjusted return relative to a risk-free rate (Correct answer)
- Maximum percentage loss from peak to trough
- Correlation between portfolio returns and Bitcoin returns
Correct answer: Risk-adjusted return relative to a risk-free rate
The Sharpe ratio divides excess return over the risk-free rate by the standard deviation of returns, quantifying how much return is earned per unit of risk.
Question 2: Which indicator combines price and volume to gauge buying or selling pressure?
- Bollinger Bands
- On-Balance Volume (OBV) (Correct answer)
- Fibonacci retracement
- Average True Range (ATR)
Correct answer: On-Balance Volume (OBV)
OBV is a cumulative indicator that adds volume on up-days and subtracts volume on down-days, revealing whether volume is flowing into or out of an asset.
Question 3: What is a 'wick' (or shadow) on a candlestick chart?
- The body showing open and close prices
- The thin line showing the high and low beyond the open/close range (Correct answer)
- A volume bar plotted below the price chart
- A trend line connecting successive highs or lows
Correct answer: The thin line showing the high and low beyond the open/close range
The wick (shadow) extends above and below the candle body to represent the highest and lowest prices reached during the time period, outside the open/close range.
Question 4: In options trading on crypto, what does an 'in-the-money' call option mean?
- The option's strike price equals the current market price
- The underlying asset price is above the call option's strike price (Correct answer)
- The option has expired and returned premium to the buyer
- The implied volatility is below historical volatility
Correct answer: The underlying asset price is above the call option's strike price
A call option is in-the-money when the current market price of the underlying asset exceeds the option's strike price, giving it intrinsic value.
Question 5: What does 'HODL' represent as an investment strategy?
- High-Output Dynamic Leverage
- Holding through volatility rather than actively trading (Correct answer)
- Hedging open positions daily with derivatives
- A specific moving-average crossover trading system
Correct answer: Holding through volatility rather than actively trading
HODL (originally a misspelling of 'hold') describes the strategy of retaining cryptocurrency holdings long-term despite price volatility, avoiding short-term trading decisions.
Question 6: Which on-chain metric tracks the ratio of coins that last moved at a profit versus a loss?
- Network Value to Transactions (NVT)
- MVRV (Market Value to Realized Value) ratio
- Stock-to-flow model
- SOPR (Spent Output Profit Ratio) (Correct answer)
Correct answer: SOPR (Spent Output Profit Ratio)
SOPR measures whether coins being moved on-chain were last purchased at a profit or loss; values above 1 indicate coins are being sold in profit, a potential sell-pressure signal.
Question 7: What is the significance of Bitcoin's halving event for traders and investors?
- It doubles the block size limit
- It reduces the block reward miners receive by 50%, decreasing new supply issuance (Correct answer)
- It cuts transaction fees in half for all users
- It triggers an automatic rebalancing of the entire crypto market
Correct answer: It reduces the block reward miners receive by 50%, decreasing new supply issuance
Every ~210,000 blocks, Bitcoin's block subsidy is cut in half, reducing the rate of new BTC issuance and historically acting as a supply shock that precedes bull cycles.
CCE Cryptocurrency Trading & Investment 4
What does the Sharpe ratio measure in a cryptocurrency portfolio?