A Fundamental Difference

In equity investing, there is a well-worn adage: it's time in the market, not timing the market, that matters. The logic is sound. Over long periods, equities trend upward. Missing a handful of the best days can dramatically impair long-term returns. Investors are counselled to accept drawdowns, stay invested, and let time work its magic.

But there is another reason equity investors can remain invested through drawdowns: they can rotate. The equity universe is vast and diverse. Correlations between sectors, styles, and geographies are rarely 1. When growth struggles, value may thrive. When US large caps falter, emerging markets might rally. The investor who stays fully invested can rotate exposure, seeking pockets of strength even as broader markets decline.

Cryptocurrencies are different.

Within the crypto asset class, correlations are persistently high. Bitcoin and Ethereum—the two largest cryptocurrencies by market capitalisation—tend to move together. When Bitcoin enters a bear regime, Ethereum almost always follows. There is no crypto equivalent of rotating from growth to value or from US to international. The entire asset class rises and falls in near-unison.

This leaves crypto investors with a distinct challenge. The same volatility that creates spectacular upside also produces drawdowns of a magnitude and speed that equities never experience. A single catastrophic week can erase months or years of gains. The best days in crypto are extraordinary—but they are often immediately preceded or followed by the worst days. The investor who stays fully invested through everything accepts a level of capital destruction that would be untenable in traditional markets.

Yet the solution is not binary. The volatile nature of crypto is such that maintaining a minimum exposure can be beneficial. A modest allocation ensures participation in sharp, unexpected rallies and acknowledges that perfect timing of exits and re-entries is neither possible nor prudent. The objective, therefore, is not to move entirely in and out of the asset class, but to dynamically pare down exposure during adverse regimes—reducing capital at risk while maintaining a foothold in the market.For crypto, the adage inverts: it's time out of the market, not time in, that preserves capital and enables compound growth. But "time out" is a matter of degree, not a binary choice.

The objective is to be more present during strong momentum phases and less present during catastrophic declines. To capture the upside while systematically reducing exposure to the downside. And because rotation within crypto is not a viable diversifier, "less present" must mean allocating partially to assets outside the class entirely—cash or cash-equivalents like US Treasuries.

This is not market timing in the pejorative sense. It is regime identification—a disciplined, rules-based approach to being on the right side of the market's most powerful trends, with exposure calibrated continuously rather than switched on and off.

The Challenge

Crypto markets present unique challenges:

• Extreme volatility: Daily moves of 10% or more are not unusual. Drawdowns of 50%+ occur with regularity.
• Regime shifts are abrupt: The transition from bull to bear can happen in days, not months.
• Fundamentals are nascent: Traditional valuation metrics are difficult to apply. Price is often the most reliable signal.
• Minimum exposure matters: Being entirely absent risks missing the violent upside reversals that characterise crypto markets.

In this environment, conventional trend-following models—with their fixed measurement periods—are too slow. By the time a 12-month moving average confirms a trend change, the catastrophic drawdown has already occurred. The investor who waits for confirmation arrives after the damage is done.

What is needed is a model that can identify regime shifts *as they happen*—not weeks or months later—and adjust exposure dynamically, scaling down rather than exiting entirely.

The Solution: PDE

The Phase Detection Engine (PDE) was built for exactly this challenge.

PDE is not a fixed-period model. It does not measure momentum over the same arbitrary window for every asset in every market condition. Instead, it identifies structural breaks in volatility—the points at which a security's behaviour shifts meaningfully—and measures momentum and volatility within each true regime.

For crypto, this is transformative.

When Bitcoin enters a strong momentum phase, PDE identifies it early—not because of a calendar trigger, but because the volatility structure has changed.

Exposure is increased accordingly. When that phase begins to deteriorate and a new regime emerges, PDE recognises the break and signals a reduction in exposure, shifting a portion of the allocation to US Treasuries while maintaining a minimum presence in the asset class.

This is not merely a technical enhancement. It is a direct application of our foundational investment philosophy: cognitive error mitigation. PDE corrects the errors that plague conventional trend identification models—fixed time horizons, arbitrary measurement windows, and the illusion that all securities behave alike. By stripping away these biases, PDE ensures our crypto strategies are built on the same disciplined, error-mitigated foundation as every phaseinvest portfolio.

The Process: Managed Crypto Exposure

Our crypto strategies—for Bitcoin and Ethereum—follow a simple but powerful structure:

• Universe Definition
  • The cryptocurrency (Bitcoin or Ethereum)
  • US Treasuries (for capital preservation during adverse regimes)

• Modelled Analytics
  • PDE identifies the cryptocurrency's current phase date
  • Phase Momentum (PDEMOM) and Phase Volatility (PDEVOL) are calculated within that true regime
  • Risk-Adjusted Phase Momentum (PDEIR) reveals the efficiency of the current trend

• Security Selection & Position Sizing
  • When PDE signals strong momentum within a favourable risk-adjusted profile, allocation to the cryptocurrency is increased
  • When PDE identifies regime deterioration, allocation is reduced, with a portion shifted to US Treasuries
  • A minimum exposure is maintained even during adverse regimes, acknowledging the volatile nature of crypto and the potential for sharp reversals
  • The allocation between the two assets is dynamic and continuous, driven entirely by PDE's regime intelligence—not binary

There is no subjective judgment. No emotional intervention. Just a systematic process designed to be more present during strong phases and less present during catastrophic ones, while never entirely abandoning the asset class.

The Power: Spending Time Out of the Market

The tables below illustrate the impact of this approach. They compare a hypothetical buy-and-hold investment in Bitcoin against a PDE-managed strategy that dynamically adjusts exposure, shifting a portion to Treasuries during adverse regimes while maintaining a minimum allocation.

Table 1: Drawdown Comparison