A Comprehensive Analysis Evaluation of Crypto Portfolio Management

Key Insights

• Bitcoin and Ether have provided empirical risk-adjusted benefits to a traditional portfolio (60% stocks / 40% bonds), despite the volatility and downside risks.
• Beyond simply adding weightings of BTC and ETH, building broader crypto portfolios and benchmarks has been challenging at best due to the variation and short history of the return series. The existing set of benchmarks are ripe with challenges, but alternatives are explored.
• As the time series of crypto returns mature, these assets’ performance may be better understood in a range of scenarios. For now, investors can use equity markets as a guide for determining sectors and perhaps even what environments these assets perform best. This framework is utilized to map crypto assets to traditional sectors to track performance across business cycles, informing tactical allocation decisions.
• To build a better crypto-specific portfolio: the more equal weight the portfolio, the better the risk-adjusted performance. Crypto performance truly mirrors venture capital, with a small number of wins driving overall portfolio performance.
• Nuances to consider for allocators that are unique to the crypto markets include thin liquidity/depth, technical analysis outperformance, and unstable return profiles. Allocators have a unique opportunity to take advantage of these emerging markets before the markets become more efficient.

Portfolio management is hard.