NEW YORK, February 28 — The crypto trend-following trade is showing signs of relief after being severely tested during a sharp sell-off last year, according to market participants and recent data. The renewed stability comes as momentum strategies — which had been punished by violent price swings in 2025 — begin to perform more consistently amid reduced volatility and renewed investor interest.
Trend-following strategies, often employed by systematic hedge funds and algorithmic traders, seek to capture momentum in digital assets such as Bitcoin and Ethereum. When markets exhibit strong directional movement, these strategies can generate significant returns. However, in late 2025, extreme market turbulence wiped out months of positioning, creating substantial challenges for trend-based approaches.
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What Is the Crypto Trend-Following Trade
The crypto trend-following trade refers to a systematic investing approach that capitalizes on persistent price momentum. These strategies typically buy digital assets as they rise and reduce exposure when prices weaken, aiming to exploit sustained trends over weeks or months.
In early 2025, crypto markets experienced extended periods of high volatility and rapid reversals, conditions that can be detrimental to trend-following models. Instead of smooth trending patterns, prices oscillated violently, erasing gains and triggering abrupt drawdowns for funds relying on momentum signals.
Over the course of the year, sharp sell-offs and sudden rebounds — driven in part by macroeconomic factors and shifting investor sentiment — created an environment hostile to traditional trend-tracking systems.
Why Trend-Following Traders Were Hit Hard
Trend-following models assume that past price momentum will persist into the future. When markets move directionally over extended periods, the strategy can yield outsized returns. But when volatility increases and prices oscillate without clear trends, these models struggle.
In 2025, cryptocurrencies such as Bitcoin and Ethereum experienced precisely this type of erratic behavior. Rapid reversals and unpredictable swings led many trend-based positions to be stopped out, wiping out months of accumulated gains.
The inability of momentum models to adapt quickly to changing regimes exposed limitations, especially during periods of choppy price action.
Signs of Relief for Crypto Trend-Following Trade
According to market commentary and recent price data, conditions for trend-following strategies may be improving.
While 2025 was marked by erratic price moves, recent weeks have seen a reduction in extreme volatility, allowing more sustained trends to form. This environment enhances the prospects for systematic strategies to regain footing.
The Bloomberg report states that trend-following funds, which were “punished” in 2025 due to violent swings, are now finding “relief” as price behavior becomes more predictable and structured.
This relief does not imply a return to uninterrupted upward trends, but rather suggests a stabilization phase where momentum approaches might capture directional moves more effectively than in the previous period.
Bitcoin and Major Crypto Price Dynamics
Bitcoin, the largest cryptocurrency by market value, has seen its own fluctuations in recent weeks, contributing to changing market dynamics.
Although Bitcoin’s price has experienced sharp drawdowns and rebounds since its record highs, the past week has shown tentative signs of a more orderly trading range. While still volatile compared to traditional assets, the reduced intensity of swings can help systematic trend strategies identify momentum with greater confidence.
Ether and other major altcoins have shown similar patterns, with rebounds following earlier declines. These developments have helped underpin the gradual improvement in conditions for trend-based approaches.
Institutional Involvement and ETF Flows
Another factor influencing the crypto landscape is the growing role of institutional capital flows, particularly into regulated Bitcoin exchange-traded funds (ETFs).
Recent inflows into Bitcoin ETFs have signalled renewed investor interest, contributing to price stability in digital assets. While crypto markets remain sensitive to macroeconomic news, institutional participation tends to smooth trading behavior relative to retail-driven volatility spikes.
These flows can reinforce established trends, offering an environment where momentum strategies may perform more consistently.
Broader Market Sentiment
Market sentiment has oscillated throughout 2025 and into early 2026, shaped by shifting risk appetite in global financial markets. Digital assets — often viewed as risk-on instruments — have been influenced by broader equity trends, interest rate expectations and geopolitical developments.
As macro volatility recedes somewhat from peak levels, broader risk assets have exhibited tentative stability. In turn, this has helped create a trading environment where identifiable trends can emerge, benefiting systems that track momentum.
Trend-Following Models in Practice
Trend-following strategies are not limited to a single asset class or timeframe. Sophisticated models incorporate signals from multiple timeframes and asset correlations, seeking to adapt to evolving market regimes.
For instance, adaptive systematic frameworks dynamically adjust portfolio allocations based on short-term momentum signals while also balancing longer-term trends. Such approaches can enhance risk-adjusted returns when markets settle into more coherent momentum phases.
Recent academic research highlights how dynamic adaptive strategies can outperform baseline models in markets with regime shifts, underscoring the importance of flexibility in systematic approaches.
Hedge Funds and Trend Managers Respond
Several hedge funds and crypto-focused asset managers have publicly acknowledged the challenges trend-following strategies faced throughout 2025. Many firms reported that violent price swings led to drawdowns and strategy adjustments.
In response, some managers have adapted models to incorporate volatility filters and risk controls, reducing exposure during choppy market periods to limit drawdowns. These adjustments aim to enhance performance when market structure shifts from chaotic to orderly momentum.
The gradual return of more sustained price directional behavior has been welcomed by these trend-focused managers as a sign that the market may be entering a phase more conducive to systematic strategies.
Risks and Ongoing Uncertainty
Despite signs of improvement, the cryptocurrency market remains unpredictable. Sudden news events, macroeconomic surprises and regulatory developments can quickly alter sentiment and price trajectories.
While the crypto trend-following trade is finding relief, market participants caution that conditions can change rapidly. Periods of renewed volatility could once again challenge momentum models and systematic strategies.
Investors continue to monitor macroeconomic indicators, policy decisions and exchange flows to gauge future market regimes.
Closing Summary
The crypto trend-following trade appears to be finding relief after being heavily tested during a sharp sell-off in 2025. Reduced volatility and emerging directional behavior are helping systematic momentum strategies perform more consistently.
As digital assets like Bitcoin and Ether stabilize relative to prior extremes, trend-following models have greater potential to capture sustained movements. Institutional involvement through ETF flows and evolving strategy risk controls further support the emerging trend environment.
While uncertainty persists, the recent shift in market dynamics offers a more favorable backdrop for trend-based approaches than the tumultuous conditions that marked much of the previous year.