A Bitcoin Momentum Strategy

In several of our previous blogs, we looked at investment strategies for baskets such as S&P 500 or SPDR S&P 500 ETF Trust SPY, or SPY options using fundamental, macro, or technical indicators. In this piece we will consider building technical strategies for a new asset class, Cryptocurrencies.

Specifically, when bitcoin has longer-term upside momentum we seek to enter into a long bitcoin position when medium-term momentum is also positive, and we will exit the long position if the medium-term momentum stalls or reverses. We will apply the following entry and exit rules:

Entry signal:

1. bitcoin’s 50-day moving average is higher than its 200-day moving average, and

2. bitcoin’s 20-day moving average is higher than its 50-day moving average.

Exit signal:

1. bitcoin’s 50-day moving average is higher than its 200-day moving average, and

2. bitcoin is below 50-day moving average.

When there is no position and entry signal is on, we enter into a 100% AuM long bitcoin position. When there is a position, and exit signal is on we exit the long position. Additionally, if both entry and exit signals are on, do nothing.

Using OdinUltra, the no-code specialized financial AI platform, we can evaluate these strategies in minutes with data-driven analytics support. In the following chart we show the NAV curve of the above strategy versus the benchmark of holding BTC itself.

(Data: OdinUltra. No trading on weekend or stock market holidays)

This momentum strategy has a significant smaller max drawdown versus that of Bitcoin (35% vs 77%), and a much higher Sharpe ratio (1.9 vs 1.1).

Users can also view performance measures and download historical and live positions, and NAV details for further study from OdinUltra if so desired.

For investors who prefer to use their own indicators, OdinUltra’s custom indicator building capability comes handy. For example, the following chart shows a custom indicator where bitcoin close is less or equal to the bitcoin 31-day moving average:

As shown here, using OdinUltra we can quickly build a momentum strategy for the bitcoin capturing parts of a long-term upside momentum with significantly improved risk/reward profile. Users can also test their own indicators using OdinUltra’s flexible Custom indicator functionality.