Cryptocurrency Momentum and Reversal

Abstract

This article considers a variety of highly diversified cross-sectional momentum and reversal strategies, with sorting and holding periods from one week up to two years. In a sample of the 2,000 largest cryptocurrencies during the period 2014–2020, we identify positive momentum on short horizons up to two to four weeks and a significant reversal on longer horizons beyond one month. The reversal effect becomes more pronounced once we expand the sorting and/or holding periods. Momentum and, particularly, reversal returns are economically large, statistically significant, and generally not exposed to standard cryptocurrency risk factors. The main drivers of the reversal effect are “past loser” cryptocurrencies. The switching of momentum into reversal occurs after approximately one month—much quicker than the equity market, and evidence of the “faster metabolism of cryptocurrencies.”