[Recommended] Can digital currency index funds beat the return rate of Bitcoin funds?

Rage Review : 99% of index funds (i.e. funds that passively buy the entire market) outperform actively managed funds. From the analysis conclusion of this article, it is known that not only does the performance of altcoins lag far behind Bitcoin, but as a combination, altcoins have greater daily volatility. In the coming year, many altcoin funds will enter the crypto investment market. Based on this data, the author will adopt an index approach and invest cautiously with a small amount of funds.

Translation: Nicole

The idea of ​​managed portfolios and index fund portfolios has been gaining steam this year, and you can bet that many of them will hit the market before 2017. The idea was borrowed from Wall Street. For stocks, 99% of index funds (i.e., funds that passively buy the entire market) outperform actively managed funds.

This is a great idea for the crypto space right?

I have been running simulations on the altcoin markets to see if this is true. If so, it would be prudent to diversify across a number of altcoins in order to have a more rational investment in Bitcoin.

Yet the results were surprising.

Simulation experiment

The simulation time is from October 16, 2013 to now - exactly three years. Before that, you will find that the altcoin market was very underdeveloped.

My three-year period captures the last bubble in 2013, the long bear market in 2014/15, and the recovery phase that followed until today. This simulation is great because it allows us to observe how the index and Bitcoin correlate with each other in each scenario.

For all of my index portfolio simulations below, I rebalanced them to a 30-day period to account for new entrants and old players leaving.

Bitcoin vs. the top 10 altcoins by market cap

Bitcoin outperformed the altcoin group by 3.8x. Surprisingly, during the 2013 bubble, altcoins performed better but lost a lot of ground after the bear market.

This pattern of altcoins dominating the bull market has occurred twice. I found that the market bottom occurred in mid-May 2015. Since then, altcoins have recovered 3.8x (from 0.308x to 1.17x), while Bitcoin has recovered 2.7x (from 1.68x to 4.56x).

The following chart shows the top ten altcoins by market capitalization over the past three years, with a 30-day period:

Bitcoin vs. the top 20 altcoins by market cap

For those who want to see a wider range of currency portfolios, here is a simulated run of the top 20 altcoins. The results are almost identical. (At this point, someone told me the data is wrong. But trust me, it is correct).

Bitcoin vs. Altcoins ranked 11 to 20 by market capitalization

To help change that, here is a portfolio of 10 ‘small market cap’ altcoins, ranked 11 to 20 on the index. The idea is to get a better look at the more promising coins out there, and exit as soon as they reach the big leagues (or fade into oblivion).

These results are one of the more promising index allocation plans, with the portfolio dropping less during bear markets and rising more dramatically during bull markets, however Bitcoin still outperformed with a 4.6x return vs the index’s 3.6x, which also shows Bitcoin’s greater volatility.

Bitcoin vs. the top 20 altcoins by market cap

After Iconomi’s ICO (Initial Coin Offering) raised $10.6 million, I wanted to simulate an index similar to their CTF product. Iconomi uses a mechanic of 25% of market cap and another category for allocation.

The chart below shows the maximum allocation of 25% to altcoins in the basket. This is slightly different than Iconomi’s fund, but probably their final results will be a midpoint between these results and the last index simulation using an equal allocation.

Ahem is the first loser at 0.82x vs Bitcoin 4.6x.

If I get enough requests, I can run their exact allocations through a simulation.

Part of my beef with their investment whitepaper is that they picked a bull market (starting in January 2016) to showcase their charismatic results, but here is a simulated run through a bear market. It severely underperformed the vanilla standard index mentioned above, and significantly underperformed Bitcoin. However, clients are unlikely to notice this until our next bear market, which will take time.

Bitcoin and the top 20 altcoins in equal proportion

In keeping with the theme of a more diversified allocation, the index was evenly split at the start of each 30-day period. It was a disaster with a 0.64x return (a significant loss).

in conclusion

Bitcoin can really beat index funds, probably unbeatable with the current state of altcoins we have. Not only have altcoins underperformed Bitcoin by a wide margin, but as a group altcoins have more day-to-day volatility.

I asked myself why we could not parallel the world of stock markets, where indices were very successful, and I concluded that we were in an unknown world of money.

When a company IPOs, it takes many years to mature and must meet strict stock exchange (SEC) standards. This is not the case in altcoins, it is like the early stages of startups that IPO immediately, but all angel investors will tell you that they have witnessed 99% of early startups fail.

There will be many altcoin funds entering the crypto investment market in the coming year. After looking at the data, I will adopt an index-based approach and invest cautiously with a small amount of money.