Alphabot’s Crypto Portfolio Update

10 October 2022 | 
Dmitri Alexeev

In April we created an index-like portfolio of major cryptocurrencies; it was constructed using the five coins with the highest market cap each year (measured by year-end) and then held for one year). This approach has shown interesting results over more than seven years of analysis, basically doubling the return of Bitcoin alone and outperforming equities.

Given the continued challenges facing risk assets in 2022, we wanted to check in and see how our crypto index is doing year to date, and so far the results seem to be in line with our expectations, at least with respect to comparison to a single coin investment. While all three instruments have lost money so far this year, and both crypto instruments have fared worse than public equities, the Top 5 Portfolio has demonstrated lower volatility and a smaller drawdown. The effect has lasted since the beginning of June, although earlier in the year, the results have been mixed. 

Figure 1: YTD VAMI Chart of AlphaBot’s Top 5 Crypto “Index” vs Bitcoin, S&P 500 Source: AlphaBot
Figure 2: YTD Performance Statistics of AlphaBot’s Top 5 Crypto “Index” vs Bitcoin, S&P 500 Source: AlphaBot

It is worth noting that volatility in the crypto space is much higher than that of equities (with our instruments, close to double), so relative performance (or under-performance) should be taken from a point of view that takes volatility into consideration. If we look at a normalized volatility chart (set to 15% annualized), the outperformance of equities becomes much less obvious, and also shrinks to only about 3 months, again from the middle of June.

Figure 3: Volatility-adjusted YTD performance of Top 5 Crypto “index” vs Bitcoin and S&P 500. Source:AlphaBot

Normalizing the volatility also makes the distinction between our portfolio and Bitcoin less pronounced. Of course, a few months of returns can exhibit all kinds of effects, and it is the longer time frame that is needed to evaluate a particular approach. So, we will keep monitoring this construct and come back to it in a few more months. Stay tuned!

This post is part of our Alpha-Week Blog