Although Bitcoin and US stocks are influenced by similar macroeconomic, monetary policy, and political factors, there are significant differences in their investment strategies. Stocks are driven by corporate earnings and real cash flows, while Bitcoin has its own driving factors. Quantitative backtesting shows that buy-and-hold is more suitable for the S&P 500, while trend-following strategies perform better in the Bitcoin market.

Meanwhile, the market is facing multiple uncertainties. The latest round of US corporate earnings season has seen a number of companies outperform expectations, but oil prices returning to $100 per barrel, the upcoming US midterm elections on November 3, and the pressure on AI infrastructure financing are offsetting some of the positives. The market currently predicts a roughly 65% chance of a significant Democratic victory, which may slow down the policy inclination regarding AI data center development, also putting pressure on the revenue and financing prospects of related companies.

Regarding monetary policy, several Federal Reserve officials have ruled out the possibility of an interest rate hike on October 28, and the market is now betting on another rate hike in December. As the impact of oil prices on inflation gradually weakens, December may see the last rate hike before entering a prolonged pause. The yield on the 10-year US Treasury may also have peaked and is expected to fall below 5.0%.

S&P 500 Ten-Year Return 392%

Historical data shows that over the past 40 years, the average return of the S&P 500 index from April 30 to November 1 has been 2.9%, while from November 1 to the following April 30 it reached 7.2%, with 76% of years recording positive returns. This indicates that November is typically an important time window for US stocks to enter a seasonally strong phase.

The midterm elections may also become a turning point for the market. Historically, US stocks often perform weakly in the months leading up to midterm elections, but as elections conclude and political uncertainty decreases, the market typically enjoys strong risk-adjusted returns. Although there are still geopolitical risks such as inflation, AI financing, and the potential continued US and Israeli actions against Iran, which may lead to short-term corrections, seasonal factors still support US stocks.

What deserves more attention are the quantitative backtesting results. Over the past 10 years, the buy-and-hold strategy for the S&P 500 has achieved a cumulative return of 392%, significantly higher than the trend-following strategy's 166%. Calculated by annual average return, buy-and-hold reached 16.1%, while the strategy that only held positions in bullish trends achieved 9.6%.

This difference reflects the long-term structural advantages of the US stock market. The S&P 500 regularly removes underperforming constituents and includes outstanding companies that meet the standards, allowing the index to continuously benefit from corporate earnings growth. Compared to frequently judging market turning points, buy-and-hold performs better in historical backtesting.

Why Does Long-Term Holding of Bitcoin Underperform?

Unlike the S&P 500, although Bitcoin has generated significant returns over the past decade, the returns from the buy-and-hold strategy have been shrinking over the past five years. Compared to simply holding long-term, the trend-following strategy, which holds during bullish trends and switches to cash during bearish trends, has shown more significant performance in historical backtesting.

Quantitative backtesting over the past 10 years shows that the annual average return of the Bitcoin buy-and-hold strategy was 62.8%, while the trend-following strategy that only held positions in bullish trends achieved 68.4%, outperforming the long-term hold. In contrast, a strategy that used trend-following while engaging in both long and short trading had an average annual return of 40.8%, indicating that more complex trading methods do not necessarily yield higher returns.

From the perspective of the last five years, the difference is even more apparent. The trend model realized a 25% annual average return, whereas buy-and-hold only achieved 8%. This means that the key to Bitcoin investment is not only looking bullish in the long term but also recognizing changes in market trends and timely adjusting positions when bearish trends arise.

Specifically, when Bitcoin enters a bearish trend, the strategy shifts to holding cash; once the bullish trend is re-confirmed, long positions are restored. Currently, Bitcoin is still in an upward trend, but there are potential risk factors to watch for, including AI financing pressures, cyberattack risks that could impact the crypto market, and macroeconomic uncertainties.

Overall, although Bitcoin and the S&P 500 are influenced by similar macro factors, historical backtesting reveals two different winning strategies. The S&P 500 is more suited for buy-and-hold, especially during the seasonally strong phase from November to April; Bitcoin, on the other hand, relies more on trend-following by maintaining long positions in bullish trends and locking in profits when trends turn bearish, waiting for the next bullish signal.

As the US midterm elections approach and expectations for a December rate hike become clearer, the market may still experience short-term fluctuations. However, against the backdrop of governments still spending beyond their means and debt growth outpacing economic growth, holding risk assets remains important. For US stocks, the focus is on avoiding disruption from short-term macro noise; for Bitcoin, it is essential to continuously monitor trend signals. As the current upward trend has yet to be broken, maintain a holding strategy under the bullish trend while being wary of risks that may trigger a trend reversal.

Some of the insights above are from BIT on Target; contact us for the complete report of BIT on Target.

Disclaimer: The market is risky, and investment requires caution. This article does not constitute investment advice. Cryptocurrency trading may carry significant risk and volatility. Investment decisions should be made after careful consideration of personal circumstances and consultation with financial professionals. BIT is not responsible for any investment decisions made based on the information provided herein.

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