Crypto markets offer ‘strong momentum opportunities’: Kaiko
A popular equity investing strategy, which considers network effects, is paying off for this crypto index
Kevin McGovern/Shutterstock modified by Blockworks
This is a segment from the Empire newsletter. To read full editions, subscribe.
Crypto markets have a natural tilt towards momentum investing, a fairly popular tactic in equities.
But is it worth it?
A recent Kaiko report delved into the subject, which I admittedly hadn’t really considered in a crypto context. But as the report points out: “Crypto markets, driven by sentiment and network effects, offer strong momentum opportunities. Network effects drive value by attracting more users, developers, miners, and investors, reinforcing growth and adoption.”
The team put together the Vinter Hashdex Risk Parity Momentum Index, which backs the Momentum Factor ETP offered by Hashdex. Kaiko’s Adam McCarthy noted that they distributed risk in this approach to prevent a single asset from weighing over 30%.
Oh, and if you’re not so sure about this yet, keep in mind it’s been a few years of the team keeping an eye on this.
While I’m not necessarily surprised by the sizable beat the index had over bitcoin last cycle, I am slightly surprised that the index was able to stay on top of bitcoin during this cycle — especially as we watched the bull take off like it was participating in the Running of the Bulls.
As of February, Bitcoin has the largest weighting, which should come as no surprise. Then you have litecoin, XRP, and tron.
Taking rebalancing into account here, litecoin is actually a big outperformer, “benefiting from increased anticipation of a potential ETF approval, leading to a higher allocation.”
“Polkadot, which is preparing for a major 2025 upgrade aimed at enhancing scalability, flexibility, and developer accessibility, has also gained traction.”
Going back to the index’s performance, there is a question about the longevity of this strategy. Especially in a market like the one we’re currently in, where the macro environment takes center stage even if there are plenty of reasons to be bullish on the industry.
“In 2025, crypto-specific narratives, such as growing institutional adoption and a friendlier regulatory environment, could provide tailwinds for crypto momentum strategies, even as equity momentum shows signs of exhaustion,” McCarthy wrote.
The report notes that it was fairly successful in “identifying and capturing returns from emerging winners” instead of going with the flow and trying to keep up with trends.
The “ability to rotate capital into promising opportunities, while maintaining diversification, represents a dynamic approach to momentum investing in digital assets.”
What I’m personally curious about is how this strategy compares to a more fundamental-based strategy as that develops this cycle.
Clearly, momentum’s paid off so far…but as the market matures, I wonder if it’ll continue to be such an out-performer.
Get the news in your inbox. Explore Blockworks newsletters:
- Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
- Empire: Start your morning with the top news and analysis to inform your day in crypto.
- Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
- 0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
- Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
- The Drop: For crypto collectors and traders, covering apps, games, memes and more.
- Supply Shock: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.
