Trend-following Strategies for Crypto Investors

Abstract

In the rapidly evolving landscape of financial markets, the emergence of cryptocurrencies as a distinct asset class has opened up new avenues for investors. However, investors need to establish a comprehensive investment strategy and implement risk-management measures before entering this space to mitigate the potential for market crashes. This paper develops and evaluates trendfollowing investment strategies in the context of cryptocurrencies. Secondly, it investigates the commonly held belief of a correlation between the movements of the Nasdaq 100 index and cryptocurrencies, which has significant implications for investment strategy development. We find that trend following strategies perform well over the researched period. Moreover, the effect of transaction costs is very substantial on portfolio performances. We also find no correlation between Nasdaq 100 index and our investigated cryptos, inconsistent with common perception in the market.

Keywords: Cryptocurrency, Trend-following strategy, Transaction cost, Risk management JEL Classification: E42, E51, G11, G12, G21, G23

JEL Classification: C58, E42, E51, G11, G12, G21, G23