Ineffectiveness of SMA-Based Mean-Reversion Strategy in 2021 Crypto Trading

Determine whether, over the calendar year 2021, a mean-reversion trading strategy for cryptocurrencies that buys when the daily closing price falls below the Simple Moving Average by a fixed percentage threshold and sells when it rises above the Simple Moving Average by the same threshold yields no systematic advantage compared with a single buy-and-hold strategy or a random signal-based strategy across the tested set of crypto-assets.

Background

The authors compare three strategies—mean-reversion using Simple Moving Average (SMA) thresholds, a one-time buy-and-hold, and a random signal strategy—across a set of cryptocurrencies during 2021. They define the SMA strategy to open sell positions when price exceeds the SMA by a percentage r and open buy positions when price falls below the SMA by r, computing daily returns.

Motivated by assessing market efficiency, they posit that if the SMA strategy does not outperform hold and random baselines, one may conjecture that it is useless for 2021. They then present empirical backtests and discuss implications for efficiency forms.

References

If not, we could conjecture that, over the entire year of 2021, it was useless to use a "mean-reversion" strategy (which assumes that when the current price is too "far" from the moving average (SMA), the price will return to its "mean")). This may also give us an indication about the market efficiency form.

— On Bitcoin Price Prediction  (2504.18982 - Bournassenko, 26 Apr 2025) in Subsubsection “Efficient Market Hypothesis Adaptation to Cryptocurrencies” (Section “The Cryptocurrency Market is Efficient”)