Cryptocurrency Index Investing - Experiment
Hey everyone!
Brand new Steemit member and this is my very first post on Steemit. I love the concept and hope to contribute to the community in some small way.
I am also new to the Cryptocurrency community and like many I find all the different coins quite confusing. In trying to figure out where to invest in the Crypto space I began searching through Steemit and stumbled across acidyo’s post “My journey from Bitcoin to Ethereum to Steem and why I believe I ended up on the best one”.
Reading through the post I began to wonder if I should just dump my entire Cyrptocurrency allocation into one coin and hope that it’s the next Bitcoin or spread my allocation across multiple coins giving myself a higher probability of hitting the next Ethererm.
I wondered out loud in the comment section of the post.
“Brand new to Cryptocurrency but it seems to me that trying to pick the Crypto-Amazon, Google or Apple to invest is going to be really difficult.It would be great to dump everything into Steem or Ant and watch it go to $1,000/share. The higher probability strategy seems to allocate your money across the top 5-10 market cap on coinmarketcap.com and just rebalance as the industry grow.You'll lose some money as coins drop out of the top 10 but you'll also have a higher probability of hitting the next bitcoin to $2,000.”
So I thought, why not create a $10,000 paper money investment into the top 10 coins by marketcap with different indexing strategies, track the performance over time and write a blog series about it.
First we need to quantify what are the top 10 coins.
We can do this a couple of different ways. Coinmarketcap is a great place to get an overall market cap for hundreds of coins.
Then I stumbled upon coingecko.com and they had a very interesting methodology for ranking coins. They rank by;
Therefore, I decided to use the Coin Gecko top 10 coins for this experiment.
From there I’m going to break the $10,000 allocation into 3 different index strategies and see which performs the best.
- Equal Weighting - This is the most straightforward way to allocate the 10 positions. Each receives an equal weight, $1,000 spread out over the 10 coins.
- Market Cap - This allocation takes the total market cap of the top 10 coins, divides the individual market cap of each coin by the total and ranks the allocation accordingly.
- Coin Gecko - This takes the Coin Gecko ranking and divides by the total rating of the 10 coins and allocations the portfolio.
The goal is to track this, update it monthly and see which allocation provides the highest return and see if any of the allocations beats simply investing in Bitcoin or Etherem.
What do you think? Is there a better way to conduct the experiment? Please post in the comments below.
Interesting strategy good luck and keep us posted
I think there are several variables you should consider. One is what is your measure of success here. To clarify are you planning on jumping into a trade and at some predetermined point cashing out, riding it for a set period of time, or having a specific % of profit that you will cash out of.
Next is assuming you have a profitable run what criteria will you reinvest in, and with what crypto. These few points may determine your success/failure because once your start trading emotions kick in, and you don't want to trade on emotions because that's where you get burned.
So your trading strategy from the get go is important. It sounds like you may be a forex trader, which is good in that you have the tools to read the charts which should improve your overall gain.
Just some of my thoughts for someone new in crypto. Good Luck
Trading strategy is straight indexing the top 10 coins in Coin Gecko every month. No emotion involved. I paper purchased $10,000 of the top 10 coins in Coin Gecko as of July 1, 2017. On August 1, 2017 i'll rebalance based on the top 10 coins in Coin Gecko on that day.
If a coin falls out of the top 10 it gets liquidated at the price on August 1st and the coin that enters the top 10 gets purchased.
The goal is to see if an index of these 10 coins can beat putting all your money in the "hot coin" and chasing returns.
Just as in stock investing where we see that 90% of hedge funds don't beat their index over a long period. I want to see if this same indexing strategy can beat the individual coin.