This week as equities markets plummeted across the globe, Bitcoin (BTC) price besides faced a sharp correction. Over the past week Bitcoin price has dropped $1,500 and currently trades at $8,454, a new four week low.

Since the outset of the yr Bitcoin and nearly major altcoins showed an impressive gain in toll, leading analysts to suggest that a balderdash-run was brewing for 2022, an idea at present being challenged by the electric current pull-back.

Every bit has been the norm, on one side, there are bullish enthusiasts aiming for sky-loftier valuations; on the other, there are more bourgeois analysts raising questions about the viability of crypto. The big swings and explosive behavior of the crypto market is what makes them an attractive investment selection when compared to other assets but the indecisiveness of the current market is as well forcing investors to expand their strategies and adjust them oftentimes.

Cryptocurrency market place weekly overview. Source: Coin360

One strategy based on this underlying rationale is momentum investing. Equally a refresher: A momentum strategy consists of analyzing daily returns for an asset (e.k. cryptocurrencies, stocks, indexes, etc) and allocating the worst and the best performers into baskets.

The strategy is found to be lucrative in traditional markets where investors buy the best-performing baskets and sell (short) the worst performing baskets or to put simply, they are bullish on the past winners and pessimistic regarding the past losers.

Every bit a variation from the original strategy, an individual asset can be chosen as the all-time/worst performing asset that day instead of investing in baskets. Following this method, an investor would retrieve daily data for the best and worst performing asset, agree it for 1 solar day then sell for a profit on the post-obit day.

Momentum strategy for the top-fifty cryptos

As previously reported by Cointelegraph, research on cryptocurrency cost action found that applying a momentum strategy to the top-20 currencies in the market was profitable if an investor bought the best performing currency instead of the worst performing currency each day.

By expanding the sample to the summit-l currencies in the market, investors can explore fifty-fifty larger swings from lower market-capped coins that can offer investors a higher render only also expose one to a higher risk level.

After identifying the daily winners and losers from the top-50, we assume that an investor holds each crypto for 1 twenty-four hour period - buys its closing price that day and sells it the following day at the endmost price.

Surprisingly, investors employing this strategy daily from January 1, 2022 to Feb 23, 2022, would generate a profit instead past buying the worst-performing currency — this is opposite to traditional markets. An investor would have achieved a cumulative render of 367% past buying the worst-performing cryptocurrencies (buying the losers) throughout this menstruation.

Even so, when accounting for a transaction cost of 0.one%, in order to reflect a real investment scenario, the cumulative returns of this strategy are reduced to 284%. On the other side of this strategy, an investor who buys the all-time performing cryptocurrencies and sells them the post-obit day gets a high negative return for this period - the opposite result to what is found in stocks.

From an annualized Sharpe ratio perspective, meaning, the return an investor gets for its chance exposure, the buying the losers strategy offers a great option as the Sharpe ratio is i.78 when no transaction costs are considered. When those come into play, naturally, the Sharpe ratio reduces to 1.22. A Sharpe ratio under 1 is considering sub-par, while over 1 it is considered a reasonable outcome.

Which cryptos performed best and worst?

As seen in the top-20 scenario, Bitcoin, Ether (ETH), XRP, Bitcoin Cash (BCH) and Binance Money (BNB) rarely appear every bit the daily worst-performing cryptos. Smaller cryptocurrencies such every bit Synthetix Network Token (SNX) are very volatile and appeared more than twoscore times every bit the worst and the all-time-performing crypto on unlike days.

Additionally, during this period observed, Crypto.com Money (CRO) and Bitcoin Diamond (BCD) follow equally the ones with most negative appearances — 32 and 23 times, respectively.

Top-50, momentum investing, and a deeper look into 2022

Looking at the first month and a half of 2022, an investor employing the buying the losers strategy during this period would have generated a cumulative return of 160% (no costs) and of 150% when accounting for the aforementioned transaction rate.

From a risk-adjusted performance perspective, buying the losers strategy offers a great alternative for investors with a Sharpe ratio of 3.95 (no transaction costs) and a Sharpe ratio of 3.25 when accounting for the transaction costs.

The behavior during the terminal 7 days (from Feb. 17 - Feb 23)

During the last vii days of this assay, to incorporate the recent market reactions, nosotros found that the strategy yielded a very low cumulative return of 0.66% when transaction costs were not considered. When accounting for the transaction charge per unit, the cumulative return becomes negative at -0.74%.

Ownership the summit-l is a better option for investors

Underlying market shifts like the increasing liquidity of top coins mitigates some of the risks involved with momentum investing. However, as happens with smaller capped cryptocurrencies, liquidity issues may still arise from employing this type of strategy equally some of the currencies in the assay may not generate sufficient purchase or sell volume for investors to hands enter and exit positions.

Looking frontward, expanding the momentum strategy to the meridian-50 cryptocurrencies gives investors a greater cumulative return and amend hazard-adjusted-functioning. Moreover, the swings at the start of the year still make an attractive option for the hereafter backed by consequent returns over different periods. However, investors should exist enlightened that the best strategy may vary from fourth dimension to time and adjust appropriately as we take seen from the last seven days shift.

The views and opinions expressed here are solely those of the author and do non necessarily reflect the views of Cointelegraph. Every investment and trading move involves adventure. Y'all should conduct your own research when making a conclusion.