Momentum Trading - a new Crypto Strategy

Momentum Trading - a new Crypto Strategy

Coming from a hedge fund environment, what similarities do you see in the crypto industry? And are there any special specifics?

Regular markets are dominated by institutional players, while the crypto industry is dominated by retail. Crypto is similar to stocks 30-40 years ago where the most common strategies were long only and trend following. To go from simple strategies to complex ones, the crypto industry needs to build infrastructure. Which is happening step-by step, including custody solutions, regulated futures trading, prime brokers, and advanced exchanges with low latency.

Also, if we compare the size of the hedge fund and crypto industries, would you agree that there are still a lot of hedge funds that might include crypto as an investment asset in the future?

Small hedge funds lack the skills and financial resources to compete and survive in regular markets unless they find a niche. The crypto industry is a niche market and offers cheap convexity. Meaning, one can risk a small amount of capital and generate significant return (similar to buying call and put options). This attracts many retail speculators, as well as hedge fund managers.

Institutional managers have regulatory constraints to enter the market, and as well they lack infrastructure like custody solutions, strong balance sheets of exchanges, liquidity, and market size in general. As such, it is taking time for large institutional players to commit.

Your momentum trend strategy also covers the risk/reward approach. Can you tell us a bit about your risk management style?

I look at fundamentals – crypto projects will have an active developer community, a mature market, and user activity. The idea is to trade fundamentally attractive assets. For example, if a project is abandoned by developers, it will be removed from my watchlist.

Further, I use position sizing. Bitcoin and Ethereum are the most mature assets, therefore will have the highest starting weight in a portfolio, all other assets being much lower. My strategy is actively managed and the portfolio can go fully to stablecoin such as USDC. Each position is entered only when the asset is trending and has a predefined stop in advance. All assets that lose momentum will be exited. This way the portfolio will have fundamentally attractive assets which are trending.

The current crypto environment is bullish. Activity is rising. Also, projects are delivering. Where do you see/expect mass adoption happening?

Mass adoption could come from the use of stablecoins. For example, underdeveloped countries such as Nigeria have had their currency depreciated by 67% since 2008. Holding weak currencies reduces purchasing power for people, and to protect themselves people buy stablecoins. The same stablecoins or other crypto currencies are used for international money transfers as a cheaper alternative to Western Union.

US banks recently received approval to have legal custody of crypto currencies. This could have a positive impact on mass scale given easier access and custody of crypto assets. A price increase could invite speculators and speed up purchases of bitcoin and other crypto assets.

Central banks are testing digital currencies. It is a matter of time when a major country will adopt it.

Check out the "Momentum Trading" Crypto Strategy here.

We love to interview our managers, since it's always good to hear various opinions, thus we invite you to check also other interviews.

Moreover, if you are interested in creating your own Crypto Strategy, private or public, we invite you to do so, here.

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