Cryptocurrency Momentum and Reversal

We consider a variety of highly-diversified cross-sectional momentum and reversal strategies, with sorting and holding periods from 1 week up to 2 years. In a sample of 2,000 biggest cryptocurrencies during 2014-2020, we identify a positive momentum on short horizons up to 2-4 weeks and a significant reversal on longer horizons beyond 1 month. The reversal effect becomes more pronounced once we expand the sorting or holding periods, or both. Momentum and, particularly, reversal returns are economically large, statistically significant and are 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 approximately after 1 month, which is much quicker compared to the equity market and is evidence of ‘faster metabolism of cryptocurrencies’