Trend Following Bitcoin

The Death of 60/40

For decades, the 60/40 portfolio.. 60% stocks, 40% bonds.. was the gold standard of institutional allocation. The premise: stocks provide growth, bonds provide ballast. When stocks fall, bonds rally, cushioning the blow. When stocks rally, bonds just sit there earning yield.

2022 destroyed this. The S&P 500 fell -19.4%. The Bloomberg Aggregate Bond Index fell -13.0%. The "ballast" sank with the ship. A 60/40 portfolio lost roughly -16%.. with zero diversification benefit. The correlation between stocks and bonds, which had been negative for two decades, flipped positive in an inflationary regime.

The question becomes: what replaces it? You need assets that are genuinely uncorrelated and a framework that adapts to regime changes instead of assuming one regime will persist forever. That's what macro regime investing provides.. and it's the foundation of the systematic portfolio.

Systematic Over Discretionary

Trend following is a philosophy. The core principle: don't predict where markets are going. Measure where they are. If the trend is up, be invested. If it's down or hostile, hold cash. Remove the human from the decision loop.

This matters because every behavioral finance study confirms the same thing: humans are terrible at market timing. We buy when we're euphoric (tops) and sell when we're terrified (bottoms). We anchor to narratives. We revenge-trade. We hold losers and cut winners.

A systematic framework eliminates all of this. The rules are set in advance. The signals are mathematically defined. You execute the output and walk away. No opinions. No feelings. No hope trades. As the thesis states: survival is alpha. And systems survive because they don't panic.

Four Sleeves, One Framework

The current target allocation. Each sleeve is managed by a backtested engine; nothing is buy-and-hold except Gold (insurance).

Why 50% SPY (MRE v06): The core.. stable, low-drawdown equity exposure. 23 years of backtested performance, seven independent forward tests passed, beat buy-and-hold in 6 of 10 named crises. The engine provides the compounding base protection that makes the whole portfolio work. 10.52% CAGR with a −16% max drawdown is the foundation you build everything else on.

Why 20% Gold: The insurance. Gold is uncorrelated to both equities and Bitcoin on the downside. During deflationary panics, gold tends to hold or rally. It also benefits from the fiscal dominance thesis.. when governments debase currency, gold reprices. The 20% allocation stabilizes portfolio-level drawdowns without significantly diluting returns.

Why 20% Bitcoin (Arsenal BTC): The growth engine. Spot BTC managed by Arsenal BTC's three-state engine (100% / 50% / 0%) captures most of Bitcoin's upside while cutting drawdown by more than half.. −34.46% vs buy-and-hold's −83.40%. The engine sizes to the strength of the signal: full size on +2 BULLISH, half on 0 NEUTRAL, cash on −2 BEARISH. (Looking for a more aggressive Bitcoin alternative? The 8th Rule is still available as the legacy higher-turnover system.)

Why 10% Ethereum (Arsenal ETH): The higher-beta capture sleeve. Same VAMS architecture as Arsenal BTC, parameters tuned for ETH's native volatility. ETH's correlation with BTC is high but not perfect.. in regimes where ETH outperforms (DeFi cycles, Layer-1 narratives), the 10% sleeve adds upside beyond what BTC alone provides, with the same systematic risk management.

Strong Risk-Adjusted Returns

We won’t fabricate aggregate portfolio backtest numbers. The four sleeves were tuned independently against their own asset histories and the combined backtest depends on rebalance cadence, slippage assumptions, and tax treatment that vary by subscriber. What we can show is the per-sleeve evidence and the philosophy of how they fit together.

The Compounding Argument

The reason a managed multi-sleeve portfolio outperforms 60/40 isn't the absolute return number on any single sleeve. It's the shape of the return distribution. Each sleeve has been engineered to truncate its left tail (drawdown) at the cost of a modest right-tail giveaway (some peak upside). When the left tail is truncated across all four sleeves simultaneously, the portfolio enters every new bull cycle compounding from near its peak instead of digging out of a 30-50% hole.

A −56% drawdown (SPY buy-and-hold) needs a +127% gain to break even. A −83% drawdown (BTC buy-and-hold) needs +488%. A 60/40 lost ~16% in 2022 alone. Each sleeve in this portfolio has cut those drawdowns substantially.. that's where the compounding edge lives, not in chasing higher CAGR per cycle.

Running the System

Cadence: Check signals once per week. MRE v06 publishes once per day before market open with regime changes only a handful of times per year. Arsenal BTC and Arsenal ETH publish daily but typically hold positions for weeks. A 15-minute weekly review is sufficient. The Substack alert is the source of record.. the page is for monitoring.

Cash is an active asset class. When MRE v06 says risk-off, the 50% SPY sleeve moves to short-term Treasuries ($SGOV or $USFR). When Arsenal BTC reads BEARISH, the 20% BTC sleeve goes to cash. When Arsenal ETH reads NEUTRAL (signal 0), the 10% ETH sleeve sits at 50% deployed. This isn't "missing out." It's preserving the compounding base from which the next move compounds. The operating commandments are clear: no hope trades.

Rebalancing: Quarterly, or when allocation drift exceeds 5%. If Bitcoin rips and your BTC allocation goes from 20% to 30%, trim back to target. This forces you to take profits at highs and redeploy at the intended allocation.. systematic discipline that most discretionary investors can't execute.

Execution vehicles: SPY via SPY or VOO. Bitcoin via spot ($IBIT ETF or actual BTC). Gold via $GLD or physical. Ethereum via $ETHA, $ETH, or actual ETH. No leverage. No options overlays needed at the core level (though they can be layered). No futures. Keep it simple. The forward-testing page documents the per-engine validation including the WEAK OOS verdict on Arsenal BTC that we disclose up front.

Build It. Trust It. Compound.

The traditional 60/40 portfolio was built for a world of declining rates and negative stock-bond correlation. That world is over. What replaces it needs three things: genuine diversification, systematic risk management, and exposure to the highest-growth asset class of the decade.

The hard work is building the conviction to follow the system. MRE v06, Arsenal BTC, and Arsenal ETH handle the signal generation. The drawdown management philosophy handles the risk. You handle the execution.

Start with The Thesis for the mathematical foundation. Dig into macro regime investing for the equity side. Explore Arsenal BTC's signal architecture for the Bitcoin side. Layer in global M2 and the liquidity model for macro context. Then execute.