Holding or Selling: Better Crypto Strategy
The Shrimpy team has published a research which contains detailed technical analysis and compares two different ways of investing in cryptocurrencies: rebalancing and holding.
If you are active crypto community member, you are likely to meet the «hodl» word before which means holding digital assets. Many people believe their bitcoins to once cost more than they do today. Even amid huge market downfalls the hodlers don’t sell.
Another type of making investments some crypto supporters resort to is called rebalancing which implies adjusting portfolio only when asset distribution fell below preset level. Unlike holding and waiting out bear market, rebalancing protects investors from market fall impact.
Some crypto proponents believe holding to be the best investment method.
Rebalancing outstrips holding by 64%
Shrimpy made use of various data to define which investment strategy is the most profitable, like year-long market data, rebalancing strategies, number of assets in the portfolio and asset choice. Moving on, Shrimpy checked some portfolios with 2-10 assets in each. In the course of the study Shrimpy found out, sometimes rebalancing outmatched hodling.
“There are two major relations we can draw from this study — The first relation is that increasing the number of assets increased the performance of a portfolio”, the study explains. “The second relation is that decreasing the rebalance period (increasing rebalance frequency) increased the performance of a portfolio. Therefore, the ideal portfolio was rebalanced frequently and also contain numerous assets.”
The experiment by Shrimpy also compared portfolios holding ten assets yet with different period of rebalancing and it still showed remarkable results.
“If you randomly selected 10 assets and rebalanced at least once a month, you would have had a 99.75% chance of outperforming buy and hold over the last year — This is truly incredible”.
“The median performance for a portfolio with 10 assets and a rebalance period of 1 hour was 234% better than Hodl”.
“The median performance demonstrates that the higher the rebalance period with the higher number of assets presents the highest gains for rebalancing — Each value represents a percent increase over buy and hold,” Shrimpy clarifies.