Reimagining the Momentum Effect: New Momentum Factors for Crypto-Assets
Momentum is one of the most foundational elements of factor-based investing strategies. Conceptually, the momentum effect relies on a continuation of past patterns of stock or securities returns. Momentum investors buy outperforming securities and avoid — or sell short — underperforming ones. Typically, momentum strategies have been based on price because is the ultimate reflection of the behavior of a stock or security and because, frankly, there is nothing else to look at. Crypto-assets might have a unique opportunity to expand the traditional concepts beyond the momentum effect, as blockchains provide visibility into a new universe of data that enables the creation of new momentum factors. From that perspective, the data-rich nature of blockchains enable the creation of new momentum factors that can describe the behavior of crypto-assets.