Cryptocurrencies are a totally new animal in the investment space and people remain divisive about it. Some invest in it because they believe that the technology will become mainstream one day. Some invest in crypto because it offers the highest chance of getting rich in a short time. Others just stayed out of it because it is either speculative or just too hard to understand. While crypto traders just want to make a quick profit from them.
Of those who got past the stage of deciding that crypto is for them, most will get intimidated by the number of coins and tokens that one could buy – there are more than 6,900 of them according to Coinmarketcap!
I am not here to explain the technology or the jargon in the crypto world, Chris and AK do it better. I would like to share an idea where you can make gains from crypto without knowing anything about it. All you need is the price movements!
I have been running a momentum trading strategy on US stocks and the strong trends have been rewarding. Cryptocurrency is another asset class (if I may call it an asset class) that trends very well too and hence I thought the momentum strategy will perform even better on crypto.
Identify the crypto universe and rank the players by momentum
At the point of writing, there are 6,900 cryptos out there and honestly, it is too big a pool to do momentum ranking on.
I did a lazy way and limited my data set to the top 300 cryptos by market cap. Then, I used a quality filter for stocks to identify those that are fundamentally stronger and have good businesses. Although there are fundamentals we can look at for cryptos, they are limited. So I stuck to just using a market cap filter.
Thereafter I use exponential regression to numerically determine the strength of their price trend or aka momentum.
I ranked them from the highest to lowest by their exponential regression values. This ranking was done on 30 Oct 2021 updated on 6 April 2022 and here are the top 10 cryptos with the highest momentum:
#10 – Monero (XMR)
Monero is a privacy focused blockchain that aims to allow private and anonymous transactions. It was launched in 2014 and has developed its privacy capabilities significantly over the years which includes its “Stealth Addresses”, “Ring Signatures” and “RingCT” technology.
#9 – Nexo (NEXO)
NEXO is the platform utility token for the Nexo platform, a blockchain based lending platform. It grants holders benefits such as lower fees, higher returns on earning services and other benefits.
#8 – XRP (XRP)
XRP, also known as Ripple, was built to facilitate real time payments globally, in a decentralised manner. It allows for low fees, fast settlement and can be used by enterprises to facilitate payments.
Do note that XRP’s developing team, Ripple Labs, is currently embroiled in a lawsuit against the U.S. securities and exchange commission to decide if it should be treated as a security or a currency, the result of the lawsuit will likely impact XRP’s price movement in the short term.
#7 – FTX Token (FTT)
FTX token is a utility token for the FTX where holders can unlock discounts on their trading fees, tighter spreads and several other benefits. FTX is a crypto exchange and it supports the value of FTT by regularly repurchasing and burning the tokens.
#6 – Zilliqa (ZIL)
Zilliqa is a public blockchain that was designed for scalability and speed through sharding. Like Ethereum, decentralised applications can be built on it. Zilliqa aims to serve enterprises in the advertising, entertainment and finance industries.
It gained momentum in anticipation of the launch of “Metapolis”, a metaverse-as-a-service powered by Zilliqa. Metapolis allows users to build their own virtual universe easily and has already secured about US$2 million in pre-launch.
#5 – Zcash (ZEC)
ZCash is a decentralised payment system built with a focus on privacy, speed and low cost. Payments can be made anonymously through “shielded address” even though the transactions are publicly recorded on the blockchain.
#4 – Terra (LUNA)
Terra is a blockchain platform that aims to create a digital financial system independent of major banks, through algorithmic stablecoins pegged to fiat currency. The value of its stablecoin, UST, is maintained by manipulating the supply of the LUNA token. I explained more in the deep dive article about Terra.
The Luna Foundation Guard (LFG) has purchased about US$1 billion worth of Bitcoin since the start of 2022 and has announced that UST will be backed by a reserve of Bitcoin, to improve the ability of UST to keep its dollar peg.
Since the announcement in early March 2022, Terra had been gaining momentum.
#3 – THORChain (RUNE)
THORChain was designed as a cross-chain decentralised exchange (DEX) to facilitate the transfer of crypto assets across different blockchains.
To ensure that there is enough liquidity for users to swap and move their crypto, THORChain uses an automated market maker model that is supported by its continuous liquidity pools. Its token, RUNE, is used as the base currency when swapping with other cryptocurrencies and also as a reward token for users to add and support the liquidity pools.
#2 – Unus Sed Leo (LEO)
Named after a Latin citation from an Aesop fable, LEO is a utility token that can be used on the Bitfinex exchange. Its function is very similar to how BNB and CRO are used on their respective exchanges.
It was borned from a dark past – Bitfinex’s 2016 hack where 120,000 bitcoin were stolen. While Bitfinex managed to reimburse their users in 2017, the stolen Bitcoins remained out in the wild with many watching over their movements.
What would happen to all that money, if they ever recovered the original stolen Bitcoins? Bitfinex launched LEO in 2019 as a utility coin and added that “An amount equal to at least 80% of recovered net funds from the BitFinex hack will be used to repurchase and burn outstanding LEO tokens within 18 months from the date of recovery.”
In Feb 2022, 90,000 Bitcoins from the hack were moved, tracked and seized by the U.S. Department of Justice. This kicked off LEO’s momentum as investors were speculating that Bitfinex would repurchase and burn LEO tokens once they received the Bitcoins, which would send LEO’s price soaring.
Netflix will be making a documentary series around this, so you can stay tuned for the drama. At the point of writing, the distribution of the recovered Bitcoin isn’t clear yet.
#1 – WAVES
Waves is a blockchain launched to allow anyone to easily build, create and launch their own tokens, without requiring sophisticated smart contract programming. They were launched in 2016 via an Initial Coin Offering (ICO) and have been building their community and platform ever since.
They are one of the early layer-1 alternatives that offers a faster, cheaper blockchain option. And, they are similar to Terra where they have an algorithmic stablecoin, USD Neutrino (USDN) which is backed by their token, WAVES. Likewise, users can stake USDN for a return, but unlike UST, the rate of staking returns for USDN depends on the price of WAVES.
Its momentum was kickstarted in March after it underwent an upgrade and announced plans to establish cross-chain transfers and to build a metaverse that’s open to any blockchain.
However, do take note that at the point of writing, it is facing accusations of price manipulations causing its stablecoin USDN to experience a depeg.
Portfolio Execution
I put some of my own money to test the momentum strategy on crypto and though it is still early to conclude anything, the potential does look good.
An execution challenge is that not all the cryptos are available on one exchange and it isn’t practical to have many exchanges to execute one strategy. I use KuCoin for this momentum strategy as it has a wide variety of cryptos and fees are cheap.
Momentum is versatile
I don’t know these coins and tokens well. But this is where momentum really shines because it absolves us from having to do a lot of research and still get the financial gains we desire.
We can measure momentum in numbers which enables us to do ranking and buy those that are high in momentum.
Momentum is a phenomenon that has long been proven in stocks and funds. Crypto is similar because the participants are the same – humans. Hence momentum should work for crypto too. I expect the gains to be even more exceptional for crypto but that comes at a price too – losses can be huge too.
You can join this session if you like to find out more about the Quality Momentum Trading (QMT) strategy that I run on stocks and adapted to crypto.
