Bitcoin: The Trend Is Intact, For Now – Bitcoin USD (Cryptocurrency:BTC-USD)

I have previously written about Bitcoin here and here. This article is an update to my previous work.

Investment Thesis

The existence of momentum is a well-established empirical fact. The return premium is evident in 212 years of U.S. equity data (from 1801 to 2012) — as well as U.K. equity data dating back to the Victorian age in over 20 years of out-of-sample evidence from its original discovery, in 40 other countries and in more than a dozen other asset classes. Some of this evidence predates academic research in financial economics, suggesting that the momentum premium has been a part of markets for as long as there have been markets.

Fact, Fiction and Momentum Investing, AQR

Since markets have existed, so has momentum, which results in constant uptrends and downtrends in asset prices. Changing prices trends can result in wild swings in price, and for volatile assets, the fluctuations can be quick and violent.

Bitcoin is an attractive asset for trend followers because its uptrends tend to be very strong partly due to the inherent volatility of bitcoin. When bitcoin’s price moves, it moves with force and bitcoin bull markets are notoriously fierce.

A simple trend-following strategy applied to bitcoin can potentially result in market-crushing returns if conditions are favorable. Using the 200-day exponential moving average, I constructed a bitcoin trading strategy: hold bitcoin when it trades above the 200-DMA, and hold cash when it trades below the 200-DMA.

After months of free fall, around 70% down from all-time highs, a sustained turnaround in Bitcoin’s price in Spring 2019 indicated a changing sentiment in the market. When bitcoin broke above its 200-day moving average earlier this year, I saw it as a cue to go long. I sure didn’t want to miss a chance at a potential bull market in the making.

Data by YCharts

Since then, bitcoin has substantially outperformed other asset classes, despite continued volatility. The breakout in April turned out to be…

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