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Research

Long-only vs long/short

The same rules run long-only, short-only and long/short from January 2021 to September 2026, with identical signals, risk limits and costs.

Long/short CAGR
45.7%
Long-only CAGR
35.5%
2022, long-only / long/short
−1.8% / +36.3%

Findings

  1. Long/short returned 45.7% CAGR with a Sharpe of 1.67 and a maximum drawdown of −18.5%.
  2. Long-only returned 35.5% CAGR, with a higher Sharpe (1.98) and a shallower maximum drawdown (−14.7%).
  3. Almost all of the gap between them comes from 2022, when long-only returned −1.8% and long/short +36.3%.

Method

Most crypto strategies hold long positions only. This book trades both directions, and short positions accounted for about half of its position-time in the backtest. To measure what the short side contributes, the rules were run three ways with identical signals, risk limits, stops and costs: long/short as traded, long-only (short signals ignored) and short-only (long signals ignored).

Results

Jan 2021 – Sep 2026Long-onlyShort-onlyLong/short (as traded)
CAGR35.5%5.9%45.7%
Sharpe ratio1.980.411.67
Maximum drawdown−14.7%−18.7%−18.5%
-50%0%+50%+100%+150%2021: +118%2021: +101%2021: +2%20212022: +36%2022: -2%2022: +37%20222023: +56%2023: +49%2023: 0%20232024: +43%2024: +52%2024: -6%20242025: +7%2025: +12%2025: +1%20252026*: +23%2026*: +14%2026*: +5%2026*
Long/short (as traded)Long onlyShort only

* 2026 to 27 September.

  • Risk-adjusted, long-only did better. Its Sharpe was 1.98 against 1.67 and its maximum drawdown −14.7% against −18.5%. A plausible cause is that crypto up-trends have tended to persist longer than down-trends, while short positions carry the risk of sharp rebounds.
  • The short side earned its return in the bear market. In 2022 the ten assets fell by between 52% (BNB) and 94% (SOL). Long-only lost 1.8%, short-only made 36.6% and long/short made 36.3%, nearly all of it from shorts. In other years the short leg added 2–3 points (2023, 2025), cost about 3 (2024) and has added about 9 in 2026 to date.
  • Short-only returned 5.9% CAGR, with a Sharpe of 0.41 and a maximum drawdown of −18.7%. The short side is traded only as part of the long/short book.

Implications

On Sharpe and drawdown, the long-only variant has the better backtest. The book keeps both sides because a long-only crypto trend strategy has little to hold through a bear market that can last a year or more, and 2022, the one bear year in the sample, accounts for almost all of the difference in return, so the case for the short side rests on one year of data.

The rules require stronger evidence to open a short in a rising market than to open a long, so short exposure stays small while prices rise. The book still holds short positions, including some opened during rallies, and some of them close at a loss.

Limitations

The sample contains one bear market. Funding is excluded; including it lowers the return of all three variants (Note 01).