Balanced Cryptocurrency Portfolio for the average investor

In this blog post, I’ll be talking about one my favorite cryptocurrency portfolio that I think is best for the average investor, it’s idea is simple, easy to apply, and the best of it? It works.

Balanced Portfolio versus Bitcoin
Backtest results for the year 2017

As you can see from above chart if you invested $10,000 into the balanced portfolio you would’ve to attain $219,491 at the end of the year, which yield 2,194% of return, 160% more when compared to Bitcoin, isn’t it impressive?

The portfolio for the average?

These are a few question that everyone should ask themselves when choosing the right strategy to construct their portfolio:

  • Are you a coin(cryptocurrency) picking prodigy that is able to pick only 100x coin?
  • Do you withhold any superior information that’s not accessible to the public?
  • Do you have a strong team with a diverse background?
  • Are you capable of analyzing both business and the technical aspect of a coin/project?

For most of the average investor, the answer will be no to all of them, yet most people are overconfidence so that they invested in multiple coins without even understand the basics of the blockchain. The market in the previous year has been really kind to us, but that won’t stay that easy forever!

a market cap weighted portfolio

By definition, balanced portfolio aims to achieve a balance between risk and return. A Market-cap weighted portfolio does that by diversification, the correlation covariance between the selected cryptocurrencies is going to give us a less volatile portfolio, but also provide us an adequate exposure to the mid to small cap altcoins.

how to construct the market-cap portfolio?

Although there might be some differences between portfolios, such as one with limited fund a portfolio that included 100 difference altcoins would be inefficient and incur an excessive cost, a portfolio with only 3 cryptocurrencies will lose the potential from the smaller cap altcoins. But, here are some guidelines to start with,

  • Keep it around 10~15 cryptocurrencies
  • Capture around 70~80% of market cap
  • Rebalance your portfolio quarterly or monthly

I’ll show you the portfolio I’ve constructed to backtest this strategy, I chose to rebalance quarterly to make things easier. (Historical data are obtained from coinmarketcap.com)

134% Return from 2017 Q1
319% Return from 2017 Q2
138% Return from 2017 Q3
368% Return from 2017 Q4

The best part of using this strategy is I only need to spend a day once a quarter to rebalance my portfolio, yet I enjoyed a much higher return than just hodl-ing Bitcoin!

A quick recap

Market-cap weighted portfolio has higher Sharpe ratio (less volatile, higher return), it is less time consuming and easy to apply strategy, it is friendly to the average investor without superior knowledge. It is also another way of saying that I bet on the whole blockchain industry instead of betting on one single blockchain company.

Share and like this blog post if you find it useful 😀 (also comment below if you have different opinion and views)

Self-employed digital marketer at https://seenlyst.com/

Leave a Comment