Crypto Users who Diversify Perform Better

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We ran over 100,000 backtests for our latest research. This research helps answer the questions of 1) how many cryptocurrencies you should HODL or rebalance and 2) how often to rebalance for best performance.

Over the course of the last year and a half, our team has become recognized as a global leader for portfolio management in the crypto market. Executing over $350M in trades, Shrimpy has captivated the minds of tens of thousands of cryptocurrency traders.

If you haven’t already, sign up for a free Shrimpy account and join our Telegram group to stay up to date on the latest research. We also recommend reading our last article discussed the relationship between portfolio diversity, rebalancing, and performance.

After reading this article people were enraged.

They weren’t enraged for the reason you would expect. After all, we ran over 25,000 backtests in order to produce this data. They were enraged because the study stopped at 10 asset portfolios. They demanded we further the study to include more crypto! Just how much should you diversify?

Engineers don’t always want to be practical. Sometimes they just want to know how far something goes before it breaks. They wanted us to break the data.

So, we tried.

The Setup

Instead of stopping at 10, we went up to 40 assets (our preferred general term for cryptocurrency) in each portfolio this time. That’s 100,000 backtests. The results of those backtests have been broken down by strategy type. We also converted the graphs to a simple line graph that shows the relationship between the number of assets in a portfolio and the median value of the portfolio at the end of a one year period. The initial investment for each backtest was set to $5,000.

Additional information regarding the setup for the backtests can be found here:

HODL

This graph shows the results of a $5,000 initial investment that used the HODL strategy for one year. Each data point on the graph is 1,000 backtests which were run by randomly selecting the number of assets on the x-axis.

This plot shows that HODLing approached an asymptote around $45k after a one year period. As the number of assets increased past 16, there was a minimal observable difference in value.

1 MONTH REBALANCE

This graph shows the results of a $5,000 initial investment that used 1 month rebalances for one year. Each data point on the graph is 1,000 backtests which were run by randomly selecting the number of assets on the x-axis.

This plot shows that a 1 month rebalance had an apparent asymptote around $60k after a one year period. As the number of assets increased past ~22, there was a minimal observable difference in value.

1 WEEK REBALANCE

This graph shows the results of a $5,000 initial investment that used 1 week rebalances for one year. Each data point on the graph is 1,000 backtests which were run by randomly selecting the number of assets on the x-axis.

This plot shows that a 1 week rebalance had an apparent asymptote around $65k after a one year period. As the number of assets increased past ~16, there was a minimal observable difference in value.

1 DAY REBALANCE

This graph shows the results of a $5,000 initial investment that used 1 day rebalances for one year. Each data point on the graph is 1,000 backtests which were run by randomly selecting the number of assets on the x-axis.

This plot shows that a 1 day rebalance had an apparent asymptote around ~$73k after a one year period. As the number of assets increased past ~14, there was a minimal observable difference in value.

1 HOUR REBALANCE

This graph shows the results of a $5,000 initial investment that used 1 hour rebalances for one year. Each data point on the graph is 1,000 backtests which were run by randomly selecting the number of assets on the x-axis.

This plot shows that a 1 hour rebalance had an apparent asymptote around ~$145k after a one year period. As the number of assets increased past ~18, there was a minimal observable difference in value.

COMBINED RESULTS

This graph shows the results of a $5,000 initial investment that used the strategies as discussed above. Each data point on the graph is 1,000 backtests which were run by randomly selecting the number of assets on the x-axis.

This plot compares the rebalance periods and their performance over the last year. We can see that 1 hour rebalances had significantly higher returns than other periods. However, regardless of the strategy, this data suggests that a portfolio ranging from 14 to 22 assets had the highest performance potential per asset over the last year. Above this range adding more assets didn’t provide a large increase in value, although it does provide some benefit. Assets below this range resulted in a sharp decline in portfolio value.

Conclusions

The median portfolio value generally tended to increase with the number of cryptos over the last year. Portfolios with a smaller number of assets typically benefited more from adding additional assets than those with a larger number of assets.

One concern that some people expressed was that there may be an inflection point. This would be a point at which adding more assets to a portfolio decreases the median value. The results don’t appear to indicate any such inflection point.

Over the last year, portfolios holding more assets tended to outperform those holding fewer assets.

Rebalancing with Shrimpy

Over the past year, we have seen that rebalancing a diverse portfolio can significantly improve performance. The Shrimpy website can help automate this entire process. Quickly select assets, instantly allocate a portfolio, and rebalance on a consistent time period. Shrimpy is the easiest way to manage your portfolio. Best of all, it’s completely free to use right now!

Sign up by clicking here.

If you still aren’t sure, try out the demo to see everything we have to offer!

Additional Reading

Portfolio Rebalancing for Cryptocurrency

The simple backtest for rebalancing a crypto portfolio

Portfolio Diversity: A Technical Analysis

Rebalance vs. HODL: A Technical Analysis

Don’t forget to check out the Shrimpy website, follow us on Twitter and Facebook for updates, and ask any questions to our amazing, active communities on Telegram & Discord.

Leave a comment to let us know your experiences with rebalancing!

The Shrimpy Team

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