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Crypto Portfolio Update: September 2023

In April last year 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. 

One of the goals of creating this portfolio was to compare how a long-only basket of cryptocurrencies would compare to long-only exposure to Bitcoin alone, and see if the additional diversification that one would get among the largest coins at the time helps to improve either overall or risk-adjusted performance. 

So far we have seen mixed results. During drawdown of 2022, the diversified portfolio has resisted better than Bitcoin alone, but it’s still lost considerable value - 54% for the portfolio vs 70% for Bitcoin.

Figure 1: 2022 Drawdown chart of Top 5 Crypto Portfolio vs Bitcoin and S&P 500


Source: AlphaBot

On January 1, 2023, Cardano and SOLA were replaced by DogeCoin and Ripple (Ripple has been consistently included, but dropped just enough in 2022 to be replaced) in our tracker portfolio. As usual, we exclude the stablecoins, focusing on “actual” cryptocurrencies. The year overall has seen the return of the crypto space to growth, with a recovery of about half the losses experienced in the prior year. However, the extra diversification has played its typical stability anchor game, with focus on the “anchor” - the tracker portfolio has grown at a smaller pace than the Bitcoin alone.

Figure 2: 2023 YTD VAMI Chart of AlphaBot’s Top 5 Crypto “Index” vs Bitcoin, S&P 500


Source: AlphaBot

Here are the figures for 2023 YTD.

Figure 3: 2023 YTD Performance Statistics of AlphaBot’s Top 5 Crypto “Index” vs Bitcoin, S&P 500


Source: AlphaBot

It seems that so far the diversification has provided what would be naturally expected results on performance - slowing down the losses but also impacting the growth or recovery on the upside. However, in the case of our crypto portfolio, it did not really help to reduce volatility. This could be explained by the overall conversion of the crypto space, resulting in pretty high cross-correlations.

Figure 4: Correlations of AlphaBot’s Top 5 Crypto “Index” constituents in 2023


Source: AlphaBot

As we can see, all the correlations are pretty high (well above 0.5 and all the way to 0.87) with the exception of Ripple (XRP) that is the only coin in this set staying consistently below 0.5 correlation with the other four. This kind of “herding” of large crypto coins seems to emphasize the leading role of Bitcoin - despite its shortcomings due to “old tech”, it continues to be the elephant in the room that drives others both up and down the performance scale.

More to come in the crypto space in the coming months. Stay tuned!


Dmitri Alexeev is Founder and CEO of AlphaBot


The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group

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