Momentum trading strategies on cryptocurrencies

Abstract

Momentum trading strategies have been noted as the principal market anomaly that has the potential to successfully predict future market prices. Momentum trading strategies have formed part of a multitude of research, proving successful results across all traditional asset classes. Understanding the price predictability of momentum strategies on cryptocurrencies is important as they are a relatively new financial asset and are attracting institutional investors' attention. The objective of the study was to test whether momentum trading strategies would produce significant positive returns when applied to cryptocurrencies. The study tested time-series and cross-sectional momentum trading strategies across 15 cryptocurrencies over a 6 year period (2016-2022). The study found that momentum strategies generally produce positive returns when applied to the 15 cryptocurrencies over the sample period. However, the positive returns produced by the time series and cross-sectional momentum trading strategies were not significant. In addition, the study found that time-series momentum strategie applied to individual cryptocurrencies, in isolation, could be used to identify cryptocurrencies which produce significant returns.