The cryptocurrency market is experiencing renewed excitement, with institutional and retail interest converging around innovative strategies to capitalize on volatility. While long-term holders continue to swear by the classic "buy and hold" approach—enjoying around a 50% return on Bitcoin investments so far this year—quantitative traders are turning to a more systematic method: trend following.
This data-driven strategy, long respected in traditional financial markets, is proving especially effective in the turbulent world of digital assets. From elite hedge funds to academic researchers, evidence is mounting that algorithmic trend tracking not only outperforms passive investment but also helps investors navigate emotional market swings.
Why Trend Following Works in Crypto
Unlike emotional retail investors swayed by fear of missing out (FOMO) or panic selling during downturns, quantitative systems operate without bias. They analyze price momentum across timeframes and execute trades based on predefined rules—capturing gains during strong uptrends and reducing exposure or going short when momentum reverses.
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Tarek Abou Zeid, Partner and Senior Client Portfolio Manager at Man AHL—the quantitative arm of Man Group Plc—emphasizes the edge of such strategies:
“Momentum-based approaches have historically delivered superior risk-adjusted returns compared to buy-and-hold, regardless of market speed. Trend following eliminates behavioral biases. In crypto, where emotions run high, these patterns are even more exploitable.”
Man AHL’s research shows that since 2017, a proxy long/short trend-following strategy for Bitcoin and Ethereum has outperformed simple buy-and-hold models when measured at a 10% volatility target. The system profits both when prices rise and fall, adapting dynamically to shifting market regimes.
Institutional Adoption on the Rise
Major asset managers are no longer sitting on the sidelines. Man Group, which managed a record $167.5 billion in assets by the end of 2023, has integrated crypto into its existing trend-following frameworks. Similarly, AQR Capital Management LLC has publicly disclosed its use of futures-based trend strategies in the digital asset space.
Florin Court Capital LLC, a $2 billion quant fund specializing in exotic and alternative markets, began trading cryptocurrencies in 2017 and now actively trades both Bitcoin and Ethereum. Founder Doug Greenig notes strong year-to-date performance and highlights the similarities between crypto and volatile commodity markets.
“Crypto fits our profile perfectly,” says Greenig. “Its behavior mirrors that of high-volatility commodities. What you need is a solid trend model and rigorous risk control.”
He also stresses caution regarding counterparty risks, avoiding unregulated exchanges and maintaining a conservative stance toward operational vulnerabilities—an important consideration given the history of exchange failures and hacks in the sector.
Academic Backing Strengthens the Case
Beyond Wall Street, academia is lending credibility to trend-following in crypto. A 2023 study by Monash University found that momentum strategies consistently outperformed buy-and-hold approaches for both Bitcoin and Ethereum, with shorter lookback periods yielding better results. Another paper from Cambridge University and other institutions analyzed data from 2011 to 2019 and concluded that trend-following delivered “consistent and attractive returns” over time.
These findings reinforce what practitioners have observed: digital assets exhibit strong price persistence during trends, making them ideal candidates for systematic trading models.
ETFs Bring Trend Strategies to Retail Investors
Until recently, sophisticated trend-following tools were accessible only to institutional players. But the launch of new exchange-traded products (ETPs) is democratizing access.
One notable example is the Global X Bitcoin Trend Strategy ETF (BTRN), launched last month. It tracks the CoinDesk Bitcoin Trend Indicator, dynamically allocating between Bitcoin futures and one-to-three-month U.S. Treasury bills.
When upward momentum is detected, the ETF increases its Bitcoin exposure; during downtrends, it reduces holdings—but does not short sell. This makes it suitable for investors seeking participation in rallies while minimizing drawdowns during corrections.
Adam Sze, Head of ETF Product Development at Global X, explains:
“Bitcoin remains prone to sharp volatility and deep pullbacks. BTRN performs best in environments with clear and sustained directional momentum—whether up or down.”
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Key Challenges and Limitations
Despite its promise, trend following isn’t universally applicable across all crypto assets. Experts warn against applying traditional momentum models to highly speculative tokens, particularly meme coins like Dogecoin or Shiba Inu.
Andre Rzym, Partner and Portfolio Manager at Man AHL, cautions:
“Extreme caution is warranted when applying conventional momentum frameworks to certain segments. Stablecoins, for instance, are anchored differently and don’t exhibit typical price trends. Meme coins display erratic price dynamics that often defy standard technical models.”
These assets are driven more by social sentiment and viral narratives than by fundamental or technical patterns, making them poor candidates for systematic trading.
Frequently Asked Questions (FAQ)
Q: What is trend following in crypto trading?
A: Trend following is a systematic strategy that identifies and capitalizes on sustained price movements. It uses historical price data to determine whether an asset is in an uptrend or downtrend and adjusts positions accordingly—buying during rallies and selling or shorting during declines.
Q: How does it differ from buy-and-hold?
A: Buy-and-hold involves purchasing an asset and keeping it regardless of price fluctuations. Trend following actively manages exposure based on market direction, aiming to protect capital during downturns and compound gains during uptrends.
Q: Can retail investors use trend-following strategies?
A: Yes. With the introduction of ETFs like BTRN and accessible trading platforms, retail investors can now gain exposure to institutional-grade strategies without needing advanced coding or modeling skills.
Q: Is trend following profitable in bear markets?
A: Yes—because many trend-following systems can go short or reduce exposure during downtrends, they have the potential to generate positive returns even when prices fall.
Q: What are the risks involved?
A: Risks include whipsaws (false signals in choppy markets), lagging indicators during sudden reversals, and counterparty risks when trading on unregulated platforms.
Q: Which cryptocurrencies are best suited for trend following?
A: Bitcoin and Ethereum are ideal due to their liquidity, established price histories, and tendency to form sustained trends. More speculative tokens often lack reliable patterns.
👉 See how top traders use real-time data to refine their trend-following decisions.
Final Thoughts
As the crypto market matures, so do the strategies used to navigate it. Trend following—once confined to elite quant desks—is now entering the mainstream through ETFs and educational resources. Supported by both empirical research and real-world performance, it offers a compelling alternative to passive investing.
For those seeking to harness volatility rather than fear it, systematic trend tracking may be the next evolution in smart crypto investing.
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