“Don't look for the needle in the haystack. Just buy the haystack!” – John C. Bogle

I am fairly new into the cryptocurrency sphere. I “discovered” cryptos in August of 2017. I remember I bought around 100 USD of Bitcoin and lost more than 50% trying to do day trading. Nothing unusual there, and I finally realized I suck at day trading. I just don’t have the time and patience it requires. However, I learned a lot about cryptocurrency from forums and other people posts. Then I though, let’s just hodl BTC and watch it grow.

That was a good plan, but then I started to look more into altcoins and the different “flavors” they offer. I am quite fond of NEO and the dividends it pays on NEOGAS. The investments that ETH lets you do in ICOs. XRP and its low transfer costs between exchanges. DOGECOIN ... it is Doge! And let’s not forget STEEM and the social platform it offers.

Suddenly, I realize how different altcoins can be and how the market cap of Bitcoin has reduced quite a lot in the past months. Don’t get me wrong, BTC is king and to trade most alts you need to have BTC first, but it would be foolish not to notice the growth of alts.

BTC has gone from an aveage of 85% to 56% dominance
Source

That is why I want to do an experiment. I want to apply a simple “Index fund” strategy. The reason as stated before, to me day trading is really hard and time consuming. Also, I would like to have a more solid investment plan in crypto while trying to avoid the volatility as much as possible.

The strategy will focus on dividing investments on the top altcoins (and bitcoin included). Track their progress weekly over a period of 6 months and show results every week.

How will I do it?

NOTE: The investments done in these strategies are hypothetical.
I will compare 3 different strategies.

Strategy 1 – HODL BTC

The most simple strategy. Buy BTC and hold. Keep track of its value every week. I will start with a $1000.00 investment at the beginning of November and add $100.00 every end of the month. This is a small investment a lot of people are able to keep up with.

At the time of investment (November 03rd) the price of BTC was $7,008 dollars. That means 0.14108352 BTC

Advantages and disadvantages

NOTE: These are subjective and are more of a personal opinion.

Advantages:

• It requires the least amount of time invested.
• BTC owns the highest market cap, making it safer from fluctuation.

Disadvantages:

• You are putting all your eggs in one basket (a good basket but it is only one). A sudden decline on BTC coupled with an unexpected need for fiat, and you will need to sell your BTC at a loss.
• BTC growth over time is slower compared to good alt coins (in most cases).

Strategy 2 – Index 1% Alts

This strategy works similarly to an index fund. This type of funds bet on a total market cap growth, selecting different assets across the board. In the case of cryptocurrency, it is hard to choose which coin will increase or not and the variation in price changes quite sudden, that is why I will divide the investment equally among the top coins. In normal stocks a drop of 30% means the company is in deep troubles. In cryptocurrency it happens when a “genius” and famous investor says something bad about a coin. With an index fund strategy you are betting on a rise in market cap, not a rise in a specific coin.

Strategy 2 will take the same investment amount as strategy 1. But in this case the investment will be divided among the top 11 currencies (BTC and the top 10 alt-coins). The top 10 altcoins need to hold at least 1% of the total market cap (excluding BTC). I took out BTC from this calculation because it holds more than 50% market cap making even some of the top 10 coins not hold even 1% of total market cap.

I choose this 1% strategy to assure I am investing in at least ~90% market cap.

NOTE: I am only considering the market cap value of the coin. Some coins give dividends like NEO, or are Proof of Stake and give extra coins, or have airdrops giveaways. This extra features are not taken into account.

Let’s look at the math

If I want to invest in a coin it needs to have a market cap of at least the value [1% alts market cap]. Right now the top 10 alts follow this requirement. I am not choosing more alts because the monthly investment is low and most exchanges have a lower limit on the amount you can buy.

The investment will be divided into 11 equal parts (BTC + 10 alts). The price for BTC will be set in dollars, the price of Alts will be set in BTC.

At the time of investment (November 03) the price of BTC was $7,008 dollars. That means 0.14108352 BTC divided in 11 parts. Every coin received an investment of 0.01282577 BTC minus the trade fees. Trade fees are an important topic I discuss further down below.

If a coin stops being in the top 10 alts and already has a profit from the original investment, it will be sold and the investment will go to the new coin that replaced the previous one. If the coin has not made profit it will continue with the investment up to a loss of 15% which then will be sold and replaced as previously explained.

Advantages and disadvantages

NOTE: These are subjective and are more of a personal opinion.

Advantages:

• You are diversifying your investment. The market cap can be considered as shared so, when a coin goes down it means another one goes up.
• If one of the coin fails completely you will lose only ~9% of your total initial investment.
• The potential of growth is higher than BTC as they still own less market cap and can theoretically grow faster.

Disadvantages:

• You will lose at least 1%-3% of the initial investment depending on the exchange trade fees
• You need more wallets to store the coins or risk them by leaving them in an exchange.

Strategy 3 – Hedge alts allocation

The last strategy follows the second one. However, after one week I will look into the growth of the coins and compare them to the average BTC value of all the invested coins. The coins who performed well will have a higher than average BTC value, then ones who performed poorly will have a lower than average BTC value. I will redistribute the investments so that all the coins will have the same BTC value at the start of the week. I will take the higher than average from the best performers and add it to the lower than average from the poor performers.

Why would I punish the best performers and rewards the poor performers?. As a market cap investment I see the coins as a zero sum game. If one coin performed really good during a week most likely it will go down the next week as a correction to the price applies. On the other hand, a poor performance coin is expected to rise the next week. This will apply only on the top 10 coins, a poor performer dropping from the top 10 will follow the same conditions as strategy 2.

Advantages and disadvantages

NOTE: These are subjective and are more of a personal opinion.

Advantages:

• You can take advantage of an undervalued coin to buy a little extra while the price is low. At the same time you take advantage of an overvalued coin and pull part of the investment when the coin is high.

Disadvantages:

• You will lose at least 1%-3% of the weekly investment in trading fees. This is a high toll to pay.
• It requires a larger investment of time compared to the previous strategies.

Results (Week 1 – Week 3)

NOTE: Coin values and market cap were obtained from CoinMarketCap

I waited three weeks to start this post as Strategy 3 required to follow the performance for at least two weeks.

First, let’s look at the values from the past weeks

Bitcoin has increased steadily since week one. On the alt-coins, for the second week all coins saw an increase in price. On the third week however, Ethereum, Ripple and Litecoin, and Monero lost about 3%. Neo and Nem lost the most between week 2 and 3 with 14% and 22% respectively. On the other hand Iota increased quite a lot rallying to 7th place, and Bitcoin cash gained also a momentum of 36% between weeks.

How about the investment?