Remember those days when bitcoin was worth as much as your favorite pizza? Back at that time, having a bitcoin was like being in a geek camp of dreamers who really believed in the underlying technology (Blockchain) and its potential to revolutionize the way we conduct our lives. Now, I am glad to witness that Bitcoin has stood firm against the trials and tribulations of time and regulation. Moreover, it has served as a foundation for the emerging altcoins that have brought the community some great ideas and technologies. For instance, Ethereum revolutionized the way we treat raising money for startups nowadays with ICOs, the way to create a democratic autonomous organization or build a new kind of decentralized application. Monero and Zcash brought us another layer of security and autonomy to make your transactions fast and untraceable. However, with the emergence of new coins, there has been information uncertainty. The ever-growing crypto market has become a massive boiling pot with news spilling out of it and causing drastic price movements across all cryptocurrencies. More than 90% of ICO’s turned out to be massive scams either because of fraud from investors who used a “pump and dump” strategy or from developers who couldn’t deliver the revolutionary product that had been promised. As a result, the crypto market is suffering from information distortion and a huge amount of speculation.

All in all, as a crypto enthusiast you might end up having invested into a wide selection of cryptocurrencies that you truly believe in. But, often enough you don’t have complete control over it, because of the never ending flow of information coming in from different sources. Consequently, there are two options for crypto assets holders in this situation:

1. Active: you have an eye of God and can handle information flow from all of the news sources specific to cryptocurrencies. Although, that may be possible, the reality is that you might find yourself taking huge risks and opening extreme positions due to the scarcity of analysis both fundamental and technical. You may even decide to devote your entire free time to rigorous market research and analysis. This is quite a challenge to take on, but I believe that it can be addressed in the future, as there might be only trusted distributed news feeds that could finally resolve information distortion.

2. Passive. In this position, you may think that your current distribution of assets is perfectly balanced over the long term. However, in this way, there is absolutely no protection against sudden volatility bursts and, thus, you are not keeping your desired risk levels under control. Solution: if you can’t handle the information flow from news feeds — the least you can do is to optimize your portfolio according to your risk expectations and rate of return. Assuming that you have selected cryptocurrencies not because of speculation motives or greed but because of the potential that you see in them. But at the same time, you don’t want market turmoil forcing you to panic sell and lose faith in the selected coins. In other words, despite all of the ongoing price speculation, you should keep control over the big picture in your portfolio.

To put it in a nutshell, either you are an active or a passive investor, having your portfolio optimally diversified according to your risk and return expectations will only be beneficial for you. Not only will you significantly mitigate the downside risk of your portfolio, but also improve the overall performance and gain a deeper understanding of the market trends.

How does portfolio optimization work? How can it make my current portfolio better?

Markowitz portfolio optimization theory achieves portfolio optimization through diversification of assets with different correlation. For instance, DASH reported negative correlation of -0.17 to XRP meaning a $1 upward movement of DASH will result in a $0.17 decrease in XRP. Including either low or negative correlated assets in your portfolio will bring outstanding results. Markowitz optimization implies that picking the best combination of the correlated assets makes a portfolio achieve the highest return given the certain level of risk. Thus, one may conclude that diversification is a cornerstone of the Markowitz portfolio optimization theory.

Arguably, constructing an optimal portfolio at the very beginning and keeping its weights the same is pretty utopian. Cryptocurrencies have different seasonal trends and the correlation between them also varies. Hence, in order to keep a portfolio’s underlying metrics at the same level, we need to account for those changes through periodic rebalancing (changing weights of assets). It usually takes place once a certain time period has passed or target benchmark has been reached. The rebalancing process certainly needs some automation. It goes further having a calendar reminder to rerun model. But also that you have to go through calculating the amount of coin weights in USD in order to achieve a new portfolio distribution. Moreover, you may also need to calculate the best cross rate among exchanges and intermediate coins.

So, CoinWizard was created. It is the first cryptocurrency portfolio manager that helps you construct an optimal portfolio and automate the process of rebalancing it. CoinWizard can be used as a regular portfolio manager to monitor one’s cryptocurrencies performance and transactions. In addition to this, you can also power up your current portfolio with Markowitz and volatility-weighted optimization to achieve better performance. Moreover, in order to maintain your pre-determined level of risk we currently notify our users when it’s time to rebalance the portfolio and also calculate cross-rate transactions so you don’t need to do that manually.

Stay tuned to receive new updates from our public beta. A detailed review of portfolio optimization algorithms on the cryptocurrency markets is coming.