At Set, we’re building tools regardless of whether the markets are going up, down, or simply marching in place. In line with that goal, today we’re introducing the Inverse ETH 20 Day MA Crossover Set as part of a new Inverse Strategy category on TokenSets!

Key Points:

The Inverse ETH 20 Day MA Crossover Set (iETH20SMACO) tracks the inverse price movement of our most popular Set — ETH20SMACO.

iETH20SMACO capitalizes on short term price swings in markets when moving average crossover strategies typically underperform.

Traders are now able to combine both ETH20SMACO and iETH20SMACO to compose custom allocations of ETH and USDC exposure.

More Trend Trading, Inverse and other new strategies will be launched in the future.

iETH20SMACO is currently above the 20 SMA and sitting in USDC. Hedge your portfolio by purchasing the Set on TokenSets today!

Inverse strategies track the inverse performance of a benchmark and gain value when the benchmark declines. For example, Inverse Trend Trading Sets would rebalance into the opposing asset on signal confirmations, and Inverse Buy and Hold Sets would short the underlying index. Learn more about inverse strategies here.

The iETH20SMACO Set

The Inverse ETH 20 Day MA Crossover Set attempts to capitalize on short term price swings in choppy trading markets when moving average crossover strategies typically underperform.

If the price of Ethereum crosses below the 20 Day Simple Moving Average, iETH20SMACO rebalances to ETH in anticipation of a price reversion to above the 20 SMA. If the price crosses above the 20 SMA, iETH20SMACO rebalances to USDC from ETH in anticipation of another downswing below the 20 SMA. Learn more about moving averages here.

What is the difference between the iETH20SMACO and ETH20SMACO?

Both the iETH20SMACO and the ETH20SMACO are configured to have the same rebalance criteria (i.e. 6–12 hour confirmation period, 96 hour minimum rebalance interval, 20 SMA indicator crossovers) which mean rebalances trigger at approximately the same time.

However, iETH20SMACO will rebalance into the opposite asset as the ETH20SMACO — if one rebalances into ETH, the other rebalances into USDC. Therefore, the value of the Set will move inversely from each other.

Typically, the iETH20SMACO makes a higher % of net positive rebalances but risk missing out on large shifts in trends. Alternatively, the ETH20SMACO makes a lower % of net positive trades but detects these big trends. As a result, iETH20SMACO depends heavily on market timing which makes it higher risk and useful as a hedging product.

Why use the iETH20SMACO Set

Portfolio Hedging

Because the iETH20SMACO tracks the exact inverse price movement of the ETH20SMACO, iETH20SMACO typically outperforms in choppy and sideways markets, and underperforms in most other markets. If traders believe the 20 SMA crossover signals are “selling the bottom” or “buying the top”, the iETH20SMACO can be used to hedge the risk of ETH20SMACO underperforming.

Compose Custom Allocations

Individuals can compose customized allocations of trend following portfolios by using both iETH20SMACO and ETH20SMACO to further reduce volatility. E.g. Hold 65% ETH20SMACO and 35% of iETH20SMACO to maintain a minimum of 35% ETH or USDC exposure at any given point.

Efficient Taxation

Traders simply need to mint the iETH20SMACO Set without the need to exit their ETH20SMACO position and potentially incur capital gains taxes.

Building Block

By definition, Sets can be composed of other Sets. In the future, a “meta-Set” can rebalance from ETH20SMACO to an iETH20SMACO once an indicator detects that markets are choppy.

How does the iETH20SMACO Set Perform

Disclaimer: The content below is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. The content below is provided for educational purposes only, and not indicative of future performance. None of the following should be interpreted as investment advice. The tools used below follow a predefined set of parameters and aren’t actively managed by Set Labs Inc.

View a model of the Set here. The charts below compare the hypothetical performance of holding the iETH20SMACO Set against holding ETH and ETH20SMACO over the last month, 3 months and year, assuming a slippage rate of 1% during each rebalance. *Slippage has currently hovered between 0.5% to 0.8% in rebalances.

Over the choppy, sideways market of last month, historical data shows iETH20SMACO would have outperformed both ETH and ETH20SMACO. Note: holding a proportion of both Sets would have given a return profile somewhere between the BLUE and RED lines.

Over the last 3 months, historical data shows iETH20SMACO tracked the price of ETH closely. This illustrates that the strategy is not as effective over a few months with multiple markets.

Over the last year, iETH20SMACO significantly underperforms ETH20SMACO and ETH. Therefore, iETH20SMACO should only be used in specific types of markets when the ETH20SMACO underperforms or used in combination to reduce volatility in a trend trading portfolio.

It’s important to keep in mind the the charts above are based on a number of assumptions and are only meant for illustrative purposes. As always, past performance is not indicative of future performance.

These charts use generated ETH hourly data sourced from Gemini. In production, the iETH20SMACO Set rebalances based on MakerDAO’s ETH price feed, which may output different results. If you’d like to play around with the data yourself (and tweak the parameters), feel free to fork the spreadsheet here.

Conclusion

Get started minting the iETH20SMACO Set on TokenSets here!

If you have an idea for a strategy that you’d like to see on TokenSets, please don’t hesitate to reach out to us.

Developers interested in working with us can also reach out to our friendly team by emailing us at hello@setprotocol.com or by joining our Telegram chat.

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