A 20-day SMA trend rule on BTC (hold when price is above its prior-day SMA, else cash) had a gross Sharpe ratio of 1.68 and a net of 1.25 at 0.5% frictions (BTC from Jan 2016, ETH from Jan 2017, MegaCap from Jan 2019, all through Jan 2023; short samples).
Can investors manage cryptocurrency volatility risk with simple trend following rules? In their August 2024 paper entitled "Trend-following Strategies for Crypto Investors", Trinh Hue Le and Ummul Ruthbah test simple trend following rules on Bitcoin (BTC), Ether (ETH) and the S&P Cryptocurrency LargeCap-Ex. MegaCap Index. Specifically, they hold the cryptocurrency (cash) when its price is above (at of below) its prior-day simple moving average (SMA) of 20, 65, 150 or 200 days. To assess net profitability, they consider trading frictions of 0.1%, 0.25% or 0.5% of amount traded. They further measure correlations between the movements of cryptocurrencies and those of the Nasdaq 100 Index. Using daily prices for the S&P BTC, ETH and Cryptocurrency LargeCap-Ex. MegaCap indexes starting January 2016, January 2017 and January 2019, respectively, all through January 2023, and contemporaneous daily levels of the NASDAQ 100 Index, they find that:
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