The CryptoCurious Portfolios — — How have they evolved ?

Started the experiment on November 24th 2018, when Bitcoin broke below $4000.

The objective of the study is to verify whether it’s possible to create portfolios that decouple from the top 20 cryptos that make up for most of the market capitalization.

Figure 1: As of 4/16/2019

All of the portfolio constituents have been equally pondered at start with equal amounts of cash, started with 100 value and will be rebalanced each month. Not tradable for multiple million dollar portfolios as the liquidity is low on some of these coins but could be adapted for $100k portfolios.

The objective is to find the emergence of some trends.

Portfolio Strategies

Here are the following crypto strategies/sectors that I will follow:

• The top 20 cryptocurrencies
• Digital Cash
• Smart Contracts
• Interoperability
• Privacy Coins
• Stable Coins

Figure 2: CryptoCurious portfolios price evolution and percent returns as of 04/17/2018

After nearly 5 months, the best investment would have been been invested in the Smart Contract portfolio (figure 2: red line at 179.4). Over that time horizon, the global crypto market gained 25%, and all CryptoCurious portfolios have beaten the market performance.

The Top 20 Index — The S&P 500 of Crypto

BITCOIN, ETHEREUM, RIPPLE, BITCOIN CASH, etc…

Figure 3: as of 04/17/2018

Through this portfolio, I wanted to create a crypto version of the S&P 500 (index that tracks the stocks of 500 large-cap U.S. companies). I used the top 20 coins ranked by market capitalization and equally pondered them at start to obtain my index.

Interestingly this is the portfolio (figure 3) with the most coins which is the most diversified and has the 2nd best performance. It’s a sign diversification had it’s hoped-for effects in terms of performance.

If we have a look at the growth of the portfolio’s constituents, Binance Coin (+227% YTD) has been the best performer of the group. Since the beginning of the year, Binance’s exchange has gained a lot of traction from the cryptocurrency community by conducting the crowdfunding events for BitTorrent, Fetch.Ai, and Celer through IEOs*. In order to participate in an IEO, you need to purchase Binance Coins (BNB) which is explains why BNB grew exponentially over the past couple of months. In the coming months, we might experience price appreciation on Huobi Token (HT), Kucoin Shares (KCS)... as more exchanges are getting involved in IOEs.

On the other hand, IOTA (-11%) dragged down the portfolio’s performance.

*An Initial Exchange Offering, commonly referred to as an IEO, is a fundraising event that is administered by an exchange. In contrast to an Initial Coin Offering (ICO) where the project team themselves conduct the fundraising, an Initial Exchange Offering means that the fundraising will be conducted on a well-known exchange’s fundraising platform, such as Binance Launchpad, where users can purchase tokens with funds directly from their own exchange wallet.

I will be comparing each of the portfolios to this Top 20 Cryptocurrency Index to check whether other portfolios follow a different trend.

DigitalCash

BITCOIN, RIPPLE, STELLAR, LITECOIN, NANO, DECRED

A digital or virtual currency is designed to work as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency.

Figure 4: As of 04/17/2019

These coins account for most of the cryptocurrency market capitalization, with bitcoin amounting to 50%.

YTD, Litecoin (LTC +165%) has been the best performer. The coin has been associated with the recent market bull run. The three main reasons that could potentially explain the surge in price are :

• Litecoin has been experiencing a higher hashrate which indicates a more secure cryptocurrency network.
• We are 5 months from halving (the reduction of the Litecoin mining reward issued by half).
• A positive announcement this January from the founder Charlie Lee.

“Fungibility is the only property of sound money that is missing from Bitcoin & Litecoin. Now that the scaling debate is behind us, the next battleground will be on fungibility and privacy. I am now focused on making Litecoin more fungible by adding Confidential Transactions.” Charlie Lee’s Twitter Announcement

On the other hand, Ripple (XRP -5%) and Stellar (XLM +5%) did not do very well and dragged down the overall performance as they account for 33% of portfolio. There seems to be more stability and less growth in digital cash sector (figure 4).

SmartContracts — BEST Performer

ETHEREUM, EOS, CARDANO, NEO, TEZOS, AETERNITY

Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. They not only defines the rules and penalties related to an agreement in the same way that a traditional contract does, but they can also automatically enforce those obligations.

Figure 5: As of 04/17/2018

As of today, the SmartContracts portfolio has been the best performer (figure 5).

It started off as being the underdog as blockchain startups have been selling their raised ETH through their ICO to fund operations, which had put downward pressure on prices. It seems that trend has been halted for the moment.

Tezos, EOS, Cardano have been rallying more than 100% since the beginning of the year making up for more than 40% of the weight of the portfolio.

• Coinbase announced it would allow its clients to stake their Tezos holdings (XTZ) and earn attractive annual returns. This should help investors participate in the running of the Tezos blockchain by staking their holdings and validating blocks.
• The recently released Weiss Ratings seem to confirm EOS is still in the lead when it comes to global public blockchain solutions, and the coin has been added to Coinbase Pro which added to the price surge.
• Cardano (ADA) has recently been added to the Ledger Nano S. Ledger (one of the most popular hardware wallet), which makes it easier for investors to purchase larger sums of ADA and store them securely. Moreover there is speculation ADA could be added to Coinbase’s exchange.

PrivacyCoins — Worst Performer

MONERO, DASH, ZCASH, VERGE, PIVX, HORIZEN, ZCOIN

Privacy coins are cryptocurrencies that provide users with a higher level of anonymity, users will make blockchain transactions without their financial details being exposed to the public.

Figure 6: As of 04/17/2019

The PrivacyCoins Portfolio is not doing well compared to the rest of CryptoCurious portfolios.

YTD the portfolio return averages to 37%, with most coins ranging between 15% to 55%.

Monero (XMR) which is probably the most famous privacy coin has been under a lot of pressure. “A Fork, an Algo Change, a 51% Attack, and Monero Still 85% Controlled by Asics” cites the difficulties Monero is currently going through.

Interoperability — Lost its 1st position

AION, ARK, ICON, WANCHAIN

Interoperability is the ability to easily share information and transact across blockchain systems. In a fully interoperable environment, if a user from another blockchain sends you something on your blockchain, you will be able to read, comprehend, and interact with or respond to it with little effort.

Figure 7: As of 04/17/2019

As of today the interoperability portfolio, which has the least amount of coins (4), has lost its 1st position (figure 7).

YTD, the overall performance of each coin is above average ranging from 29% (Wanchain) to 72% (ARK) but it was not to maintain the 1st position.

In the coming months Polkadot and Cosmos are expected to launch their coins which will be a component of this portfolio as they focus on interoperability. I do believe the interoperability of blockchains will be critical for the future of the cryptocurrency environment

Stable Coins — Crypto World Cash

TETHER, USDC, GEMINI USD, DAI, TRUE USD, PAXOS

A stablecoin is a cryptocurrency designed to minimize the effects of price volatility. The value of a stablecoin can be pegged to fiat currencies, or to exchange traded commodities (such as gold, silver etc). Stablecoins can be centralized where they can be backed by fiat, or in a decentralized fashion via leveraging other cryptocurrency projects in different ways.

Figure 8: As of 04/17/2019

The portfolio is stable between 99.5 and 100.5 as one could expect. It’s a good way to diversify against a stable coin that potentially looses its peg to 1USD.

DAI is a stablecoin that has recently been having some difficulties maintaining its peg. MakerDAO holders just voted and increased the stability fee to 11.5% in order to try to maintain DAI to a peg of 1. The price of DAI has since went from 0.95 to 0.986 which is a positive outcome.

Rebalancing versus No Rebalancing

Right now the results are not concluding. It’s still far too early to say whether there is an advantage of rebalancing portfolios each month (portfolio constituents being equally weighted each month). The figure 9 below shows the price evolution of the rebalanced portfolio in red and in blue if they were not rebalanced.

Figure 9: As of 04/17/2019, Cryptocurious portfolios rebalanced (red) versus no rebalancing (blue).

Conclusion

• All CryptoCurious portfolios have beaten the global cryptocurrency market if we look at the return of the total cryptocurrency market capitalization (+25% over the study period).
• Overall, all CryptoCurious portfolios have followed the uptrend of the market.
• The Top 20 Crypto portfolio is exhibiting good diversification qualities.
• It is too early to say whether rebalancing monthly your cryptocurrency portfolio is beneficial.

Nothing in this article is intended to serve as financial advice. Do your own research. Past performance is not indicative of future performance.

This is ongoing work, any suggestions are welcomed.

Thank you for reading.