Glassnode said a buy rule it tested on historical Bitcoin data had a maximum drawdown of 20%, compared with 53% for a buy-and-hold approach over the same period.
The on-chain analytics firm’s October 27 post was based on a backtest starting in July 2023. The key measure in the comparison was maximum drawdown, which indicates how far an investment fell from its highest value during the test to its lowest value afterward.
What Signal Was Used to Buy?
The rule Glassnode tested makes a purchase when the 30-day RSI of the indicator for Bitcoin supply cohorts in profit crosses above a specified threshold. This ties the timing of purchases not directly to Bitcoin’s price RSI, but to a signal derived from on-chain profitability data.
In the results reported by the firm, the rule’s maximum drawdown was limited to 20%, a 33-percentage-point difference from the 53% drawdown for the approach of buying and holding Bitcoin.
The Comparison Shows the Size of the Drawdown, Not the Return
These two percentages compare the largest loss in value during the period, not the total gain or loss over the test period. The post did not provide the strategy’s total return, the numerical value of the buy threshold, or transaction costs, so the results alone do not show which approach generated a higher return.
Glassnode shared the finding in a post introducing AlphaLab, its backtesting tool. The reported difference is a comparison of risk measured according to a specific rule using historical data.
Not investment advice.