Crypto-asset Trend-following Strategies

Is trend-following generally an attractive strategy for crypto-assets? In their April 2025 paper entitled “Catching Crypto Trends; A Tactical Approach for Bitcoin and Altcoins”, Carlo Zarattini, Alberto Pagani and Andrea Barbon test a long-only trend-following strategy on Bitcoin. They then extend the strategy to all cryptocurrencies listed for at least one year since 2015 with median daily trading volume of at least $2 million over the preceding 30 days. Their base strategy employs a daily ensemble of short-term and long-term trend signals based on the maximum and minimum closes over the last 5, 10, 20, 30, 60, 90, 150, 250 or 360 days, and the midpoints between them, as follows:

• For each lookback interval and each asset, open a position whenever daily closing price crosses above the maximum for the lookback interval.
• Close each open position based on a daily trailing stop that is the higher of the prior-day trailing stop and the midpoint of maximum and minimum closes over the associated lookback interval.
• Resize each open position daily to 25% target annualized volatility (25% divided by annualized 90-day standard deviation of returns), with leverage capped at 200%.
• Reform each day an equal-weighted ensemble portfolio of open positions for all lookback intervals.

They consider transaction costs of 0.10%, 0.25% and 0.50% and propose a way to mitigate impact of these costs. They also analyze whether crypto-asset trend-following returns diversify trend-following returns for traditional asset classes. Using survivorship bias-free open, high, low, close and volume data aggregated across exchanges for 21,616 individual crypto-assets during January 2010 through mid-March 2025, they find that:

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