It’s time to think long term. The last year has been brutal, but that doesn’t mean the future is bleak. Developers are still building away, night and day. Engineers push forward as the market bottoms out. It’s only a matter of time until the tides turn and builders boom.
Let’s talk about HODLing. The simplest way to get started in cryptocurrency. All you need to do is get some digital currencies, put them in a wallet, and wait. That’s right, just wait. Nothing else you need to do.
People who used that simple strategy nearly two years ago are ecstatic by their decision to do so. Simply put, they made bank. Many portfolios netting somewhere between 700% — 1000% increase in value. That’s a pretty exciting number for not doing any work.
Please Note: This is a Guest Post from the team at Shrimpy
Now, there are some questions that need to be answered. Like, how many assets did these people buy to be the most successful?
I’m about to tell you.
To get a better understanding of how different portfolio sizes performed, we evaluated thousands of portfolios to determine which portfolio sizes were optimal over the last few years. The starting date for this analysis began on March 15th, 2017 and continued until January 24th, 2019. This represents over 22 months of data which includes both the bull market leading up to 2018 and the entire bear market up until 2019.
The data for this study was provided by CoinAPI. Using their rest APIs, we were able to compile precise Bittrex market data at each moment in time. Our data set ranges from March 15th, 2017 until January 24th, 2019.
CoinAPI is a service which collects data from countless exchanges. Applications such as Shrimpy can then use that data to construct accurate backtests, market analysis, and produce comprehensive research.
Each portfolio was constructed by randomly selecting assets to include in the allocations. Once the assets were randomly selected, they were each assigned an even weight within the portfolio.
After a recent Shrimpy update, people are now able to see how many assets other users hold in their portfolio. At the time of writing, this graph shows a high affinity towards smaller portfolios.
The graph above suggests that 67% of portfolios on the Shrimpy platform contain 10 or less assets.
We will begin our journey with a simple 10 asset portfolio. While this may sound like a significant number of assets, it will be the smallest portfolio we will evaluate in this study.
What we want to understand is how well 10 asset portfolios perform over this time period. Looking at the distribution of performance, we can get a high-level understanding of how well these portfolios performed.
A quick look at this graph above reveals a wide distribution of performance. Anything between 5% and 4380% was within the realm of possibility for people who held 10 cryptocurrencies. Allocating 10 assets may sound like a great idea based on these results, but what we can see is the results are heavily skewed towards the bottom end of the graph. This means most people performed closer to 5% than they did to 4380%.
The median 10-asset portfolio had a performance of 662%.
Let’s look at what happens when we double the number of assets to 20.
Like 10 asset portfolios in some ways, the 20-asset portfolio performance has a wide distribution. Ranging anywhere from 134% to 2864%. Once again, there is a higher concentration of results on the lower end of this spectrum.
The median 20-asset portfolio had a performance of 759%.
A 30-asset portfolio is well beyond the average size of common portfolios. However, it is our duty to continue this journey we have begun, so we can’t stop now.
The histogram above is starting to show some visible trend movement. Compared to our first two tests, 30-asset portfolios are displaying a more evenly distributed performance profile. It is also continuing the trend of narrowing the performance range. 30-asset portfolios range from 178% to 1988%.
Although the high-performance extremes are less than smaller portfolio sizes, we are observing an increased density around mid-range performances. This demonstrates a higher likelihood a portfolio of this size will outperform portfolios of smaller sizes.
The median 30-asset portfolio had a performance of 807%.
Adding another 10 assets, we arrive at a large 40-asset portfolio. At this size, managing such a large portfolio would be a nightmare without using automation tools like Shrimpy. Shrimpy allows you to simply select your assets or instantly create an index that automates your portfolio over time.
The 40-asset portfolio performance distribution has continued this trend of narrowing the bounds on the performance distribution. In addition, the results illustrate the most evenly distributed performances that we have seen so far. The bottom range begins at 217% and the upper bound pushes 1762% with a single outcast data point.
The median 40-asset portfolio had a performance of 858%.
We are more than halfway done, so let’s keep the data rolling.
We’re noticing a shift in portfolio performance from the lower-half into the upper-half of the spectrum, with our median return finally closer to the upper-end of the spectrum (portfolios under 50 assets have remained closer to the lower-end range).
50-asset portfolios had returns ranging from 287% to 1492%, our narrowest range of results yet.
The median 50-asset portfolio had a performance of 876%.
Only 3 to go.
With a range of 377% to 1282%, 60-asset portfolios are the first portfolio sizes to have a range that is less than 1000%. It also shows a clear affinity towards percentages that are weighted towards the upper end of this range.
The median 60-asset portfolio had a performance of 914%.
2 more. Hang in there.
Ranging from 383% to 1186%, 70-asset portfolios have a performance range of ~800%. At this portfolio size, the median performance is far closer to the highest performance than any smaller portfolio size.
The median 70-asset portfolio had a performance of 925%.
We have arrived! A mountain of data conquered. The summit is beautiful in all its spectacular glory. Anything feels possible.
At this point, we know the drill. The range is smaller — from 491% to 1071%. The median portfolio performance is heavily weighted towards the upper range of performances. Out of all the portfolio sizes, 80-asset portfolios performed the best.
The median 80-asset portfolio had a performance of 927%.
Putting it All Together
To get an idea of how our median portfolios performed at every portfolio size, we can graph the performance.
What we observe is a clear trend towards larger portfolios performing better. Essentially, as we continue to increase the size of a portfolio, the median performance will increase as well. This makes a strong case for diversification in the crypto space. Based on this data, the most diverse portfolios performed better.
Disclaimer: Backtests examine past performance and do not guarantee future performance.
Free to use, Shrimpy is a crypto portfolio automation application used by cryptocurrency traders. With Shrimpy, users can create a crypto index and implement a portfolio strategy within a matter of minutes.
Shrimpy users can also follow the portfolios of other popular trades, backtest years of exchange data, and track their portfolios across numerous exchanges.