ICONOMI — A comparison of the past performances of the new DAAs

Last week Iconomi has released the first 12 Digital Assets Arrays (DAAs). In the previous article we compared the list of cryptocurrencies held by each DAA. In this article we are going to analyse how the value of those DAAs has evolved over time by imagining to hold 1$ of each DAA on 1st April 2017 and see how the value of the DAA has evolved over time.

The objective of this analysis is to compare the trend of each DAA and spot similarities and differences. The analysis does not provide any indication on what the future value of the DAAs will be.

Moreover in this analysis we assume DAAs to be passive, i.e. we assume that the weight of each holding does not change significantly over time. This might not be the case for some DAAs in the future. In fact DAAs might decide to follow active strategies by changing the weights (and the holdings) over time.

We used an historical cyrptocurrency prices dataset obtained from the daily data on CoinMarketCap. We analyse data between 1st April 2017 (right before the exceptional growth of the crypto market which happened in May) and 28th September 2017 (which is the last day of data available in the dataset at the moment this article is written)

We start by plotting the value through time of each DAA (including BLX):

We notice how the DAAs behave quite similarly through time. Why is that? Well, let start by checking what would have been to hold 1$ of each separate cryptocurrency at 1st April 2017.

Edgeless (EDG) had incredible performances. One dollar of EDG on 1st April 2017 is worth ~90$ at the end of September. So we will do the same plot excluding it:

We notice that there is a group of cryptocurrencies which hasn’t moved much, then there is a group which has peaked between June and July and then corrected at around 5–10 and finally there are Lisk (LSK) and Waves (WAVES) respectively being worth ~20x and ~13x at the end of September.

The following plot shows what a dollar of each cryptocurrency at 1st April 2017 is worth on 28th September 2017. The plot just shows cryptocurrencies held by Iconomi’s DAAs. For reasons of scale, the plot does not include EDG which has grown ~90x. The dotted red line represents a 1x growth [i.e. the value staid the same].

By looking and the cryptocurrencies held by each DAA [see previous article] we notice that none of them hold significant amount [over 5%] of EDG and LSK, and just two DAAs holds a significant amount [~20%] of WAVES. That’s one of the reasons why the trends of the different DAAs look similar.

We now imagine to introduce two additional DAAs:

• From the Future (FTF), which holds just EDG, LSK and WAVES with the same weight
• From the Future Dumb (FTFD), which holds just 1ST, REP and MLN (which have been the worst performing cryptocurrencies in the considered period) with the same weight.

The result is the following:

Clearly FTF outperforms all the DAAs and FTFD underperforms all of them. This does not mean that DAAs should have given more weight to EDG, LSK and WAVES but instead shows that different decisions in the holding can lead to quite different results.

The fact that all the DAAs have a similar value through time indicates that, despite having a different holding structure, all DAAs decided a list of holdings and weights which leads to a similar past trend.

DAAs didn’t optimise their holding structure for past performance, which is expected and good practice. In fact overfitting the training set is never a good idea. That’s why we don’t think it is a good idea for a DAA to use the holding assignment of the From The Future (FTF) DAA introduced in this article.

Still it seem that none of the new DAAs differs significantly from BLX in terms of past performances, which means that they all somehow track the cryptocurrency market as a whole.

We will keep observing the DAAs in the future and spot whether any of them will manage to outperform the market. What we would like to see from DAAs is the ability to distinguish bad and average tokens from the ones that have potential to outperform the market. Then we would like to see DAAs actively adding these tokens among their holdings. This way they would differentiate from a passive index as BLX and they would be able to charge higher fees to their clients.