Algorithms in cryptocurrencies are becoming a way for investors to work with digital assets without constant emotional decisions. The crypto market remains one of the most discussed topics in Russian investments: it attracts with high potential returns, the opportunity to diversify a portfolio, and the gradual emergence of regulated infrastructure.
But along with the interest, risks remain. Cryptocurrency can rise sharply and lose value just as quickly, so systematic approaches are becoming increasingly important. Their logic is simple: not to guess the market mood every day, but to follow pre-set capital management rules.
The ‘Crypto Instruments’ strategy by Finam is built around this approach. It focuses on instruments with exposure to the most prominent and potentially liquid coins: Bitcoin, Ethereum, Ripple, Sui, Dogecoin, Litecoin, Tron, Ton, and Shiba Inu. This set includes both major crypto assets and meme tokens, which can look like a joke for a long time and then suddenly show strong movement.
What Is an Algorithm in Cryptocurrency
An algorithm in cryptocurrency is a predetermined sequence of mathematical and logical operations. Such rules underpin transaction verification, issuance of new coins, data protection, and coordination of network participants’ actions.
Algorithms help cryptocurrency networks operate without a single control center: verifying operations, protecting data, and maintaining trust among participants.
In the crypto industry, two main groups of algorithms are most often discussed: some ensure the operation of the network itself, others help make trading decisions. The first are related to mining, consensus, and hashing, the second to algorithmic trading and automatic execution of trades.
Mining, Consensus, and Hashing Algorithms
A consensus algorithm is needed by the network so that participants can agree on which transactions to consider valid. Without such a mechanism, the blockchain could not reliably update the shared transaction history.
- Proof-of-Work, or PoW: participants confirm blocks through computational work. This approach is used in mining and requires significant resources.
- Proof-of-Stake, or PoS: the right to participate in block confirmation is linked to the share of coin ownership. The larger the share and the more reliably the participant acts, the higher their role in the network.
- Proof-of-Authority, or PoA: block confirmation is entrusted to pre-selected participants with known reputations.
- Proof-of-Capacity, or PoC: available storage space is used in the process, not just computing power.
Hashing turns data into a short digital fingerprint—a hash. If even one detail of a transaction changes, the hash also changes, so this mechanism helps quickly detect data tampering.
Different algorithms are found in mining and cryptocurrency networks:
- SHA-256: one of the most well-known hashing algorithms, used in Bitcoin.
- Scrypt: an algorithm used in Litecoin that requires more memory for calculations.
- Ethash: an algorithm associated with Ethereum during its Proof-of-Work period.
- X11: a set of several hash functions that was used in Dash.
- RandomX: an algorithm designed to work with regular processors and known from Monero.
Algorithmic Cryptocurrency Trading
Algorithmic trading is an approach where trades are opened and closed according to pre-set rules. The system can take into account price, trend, volatility, volumes, and other market signals.
Automated trading takes the next step: it not only calculates the signal but also executes the trade without manual confirmation. Therefore, algorithmic trading answers the question ‘by what rules to act,’ and automated trading answers ‘who presses the trade button.’
In crypto algorithmic trading, several types of strategies are most often used:
- Trend-following strategies: try to join directional movement and hold the position as long as the trend persists.
- Arbitrage strategies: look for price differences on different platforms or instruments.
- Market making: places buy and sell orders, earning on the spread.
- Scalping: works with short movements and a large number of trades.
You can earn with bots and algorithms if the model truly finds a market advantage and carefully manages risk. But a bot does not eliminate drawdowns, false signals, technical failures, and sharp market moves.
One of the basic risk management rules is the 1% rule. Its meaning is not to risk more than 1% of capital in a single trade. In cryptocurrency, this is especially important due to high volatility: even a series of unsuccessful trades then does not knock the investor out of the market immediately.
What Is the Idea of the Strategy
The strategy’s algorithm monitors the crypto market and looks for early impulses that can develop into a significant movement for a particular asset. The idea is to enter a position before the growth becomes obvious to most participants.
The strategy is based on software that operates according to rules. Unlike a human, a trading robot does not react to fear, hype, news noise, or loud statements by public figures. It receives a signal—and executes it.
The strategy was developed by Finam’s financial engineers, who used experience from the Russian, US, and Asian markets. The model uses proprietary methods for selecting instruments, determining position size, and holding time.
The entry threshold starts at 90,000 rubles. Trades are conducted within the legal framework of Russia: the investor does not need to use foreign crypto exchanges, cold wallets, or similar infrastructure. In addition, Finam acts as a tax agent for transactions within the strategy, so the client does not need to file a tax return for these trades independently.
At the same time, the strategy is not related to mining. The investor does not need to understand how the central processor participates in calculations, how a hash function differs from encryption, or why mechanisms like proof of work and proof of stake are important in cryptography. These topics are important for understanding blockchain structure, but the strategy itself works with market instruments, not with coin mining.
How Does the Algorithm Make Trading Decisions
Dmitry Serebrennikov, head of Finam’s portfolio modeling department, spoke about the principles of the strategy. He has worked in the Russian market since 1995, has two higher educations—in electronics and finance, specializes in algorithmic trading systems, and uses modern theories and factor models in portfolio formation.
Can You Disclose Entry and Exit Parameters for Assets?
The strategy is fully automated. A special program checks in real time whether the set conditions are met and, when a trading signal appears, executes the trade itself. Manual selection of entry or exit moments is not provided for in the trading process.
The exact parameters of the model and details of the algorithm are not disclosed, as they are part of the team’s professional and commercial expertise. However, the general principle is clear: the strategy is focused on medium-term market trends. Therefore, trading activity remains moderate—usually no more than one or two trades per month for each asset.
Who Was the Strategy Created For?
The product is intended only for qualified investors. This alone limits the circle of potential users.
First and foremost, the strategy may be of interest to those who follow the crypto market, understand its specifics, and view digital assets not as an all-in bet, but as one part of a diversified portfolio.
Risks: What Happens When the Market Falls
The strategy only works on the buy side. It is designed to achieve results through asset growth, and it is technically impossible to open short positions in the current infrastructure.
If a pronounced downward trend forms in the market, the algorithm closes positions. After that, funds can be transferred to more conservative instruments, such as money market funds. The model’s goal is not to profit from the fall of cryptocurrencies, but, if possible, to reduce the investor’s participation in a prolonged decline.
The most difficult mode for such a system is a prolonged sideways market. Like many trend models, the strategy can receive false signals: a position is opened, but the expected movement does not occur. In such conditions, a series of short losing trades is possible, and if the sideways phase lasts a long time, the cumulative drawdown can become noticeable.
Does the Strategy Compete With High-Frequency Funds?
This is not about trying to beat the market by milliseconds. The strategy does not compete with high-frequency funds that work with liquidity, micro price movements, and short-term inefficiencies.
The main advantage of the algorithm is discipline. It does not argue with the market and does not doubt because of emotions. The algorithm can open a position even when it psychologically seems to a person that it is already too late or, conversely, too early to buy. The model is aimed at medium-term directional movements, so there is no direct conflict with high-frequency participants here.
Why Was This Particular Set of Coins Chosen
The list of assets was not formed based on personal preference for individual tokens or current attention from the crypto community. The strategy includes all crypto instruments currently available to FinamTrade clients in the ‘OTC PFI Crypto’ section.
There are nine such instruments in total:
- Bitcoin
- Ethereum
- Ripple
- Sui
- Dogecoin
- Litecoin
- Tron
- Ton
- Shiba Inu
For assets where mining is relevant, the basic correspondences are as follows:
- Bitcoin — SHA-256
- Litecoin — Scrypt
- Ethereum — Ethash
Therefore, the portfolio composition is determined by the available trading infrastructure.
There are other notable assets on the crypto market, including Monero and Dash, and on the technical side of the industry, SHA-256, Scrypt, hashing, transaction structure, and other network operation elements are often discussed. But within this strategy, only the list of instruments available in the current service is used.
In What Market Conditions Does the Model Perform Best
The most comfortable environment for the strategy is a medium-term upward trend. The algorithm looks for upward directional movements and accompanies them as long as the conditions for holding the position remain.
The strategy cannot directly profit from a decline, as short positions are unavailable. In such a scenario, its task is to exit risk in time and switch to more conservative instruments. A sideways market is less convenient due to false signals and an increased likelihood of small recurring losses.
What Did Historical Testing Show
Before launch, the algorithm was tested in different market regimes. The main goal of the testing was to outperform a passive portfolio of the same crypto assets in terms of risk-return ratio over the historical horizon of the past four years.
The test was conducted without leverage—only with own capital. As a result of the backtest, the total return of the strategy was about 400 percent, the maximum drawdown did not exceed 20 percent, and the estimated average annual return was around 60 percent.
For comparison, a passive ‘buy and hold’ strategy on a similar set of assets over the same period showed about 78 percent total return. Its maximum drawdown reached about 60 percent.
Historical testing is not like numismatics, where you can consider a reference specimen as ready proof of quality. A backtest only shows how the algorithm might have behaved given a certain sequence of market events. Future dynamics may differ significantly from the past scenario.
What Return Can an Investor Expect
The final result will depend primarily on the state of the crypto market. If the market moves to sustainable growth, the strategy’s return may be comparable to bitcoin’s dynamics. In this model, the benchmark is about 60 percent per year.
If the decline continues, the result will likely be much more modest. After closing positions, funds may be in conservative instruments, such as money market funds, and returns will be closer to their dynamics.
The 60 percent per year estimate should be viewed only as a scenario, not a promise. The actual result may be higher or lower, and investments in instruments related to cryptocurrencies always carry the risk of capital loss.
The Main Principle of the Strategy
The approach is based on portfolio diversification. The future cannot be predicted with absolute accuracy, so a portfolio approach helps work with uncertainty rather than fight it.
The strategy does not bet on a single asset or the only ‘correct’ scenario. Its task is to follow the system, control risks, and maintain discipline throughout the investment cycle.
The market often becomes a place where money moves from impatient participants to patient ones. Therefore, not only the speed of signal processing and the quality of the algorithm are important here, but also the willingness to consistently stick to the chosen system.
The ‘Crypto Instruments’ strategy is an attempt to apply classic trend investing principles to the volatile crypto market: automation of decisions, rejection of emotional trading, limiting participation in declines, and distributing capital among several assets.
Its potential strength is not in high-frequency trading or trying to guess every turning point. The key idea is to execute a pre-set algorithm without panic or improvisation.
But limitations are also important: the strategy does not open short positions, is sensitive to a prolonged sideways market, and depends on the emergence of pronounced upward trends.
As the Russian financial market develops, crypto instruments may take an increasingly prominent place in investors’ portfolios. However, the availability of such solutions does not eliminate the basic risks of the asset class: high volatility, deep drawdowns, and the possibility of losing invested capital.
Therefore, it is reasonable to consider the strategy not as a replacement for a traditional portfolio and not as a source of guaranteed super-profits, but as a potentially high-risk part of investments—with a pre-determined share of capital, a long horizon, and a willingness to endure periods of negative dynamics.
