A Diversified crypto portfolio

A Diversified crypto portfolio

28 February 2020Reading time: 3 minutes

Despite Bitcoins last days of fall from levels above 10 000 USD at the time of writing trades around 9 2 00 USD, you can not claim more than the crypto-currency got a start off the year. Since the start of the year, the price has risen by more than 28 percent, and if it is believed that events such as the coming halving in May or that monetary policy will continue to push the price, then it may still be the place to buy. 

Mark Yusko of Morgan Creek Capital believes that several fundamental factors indicate a continued strong year for Bitcoin. In addition to the halving in May, he also mentions that the number of wallets is increasing, and also the number of transactions, which according to Yusko means that there is an increased interest in the cryptocurrency. However, he believes that Bitcoin is not yet working optimally for transactions, although this is something that Lightning Network is working on, but that Bitcoin should currently be seen as store of value rather than something else.

Traditionally, gold has been used as a store of value , and the debate over whether bitcoin would function as a "digital" gold is widely debated today. Even though the assets share several of the important characteristics required to function as a store of value , as an investor, you still have to keep in mind that these are vastly different assets - and should be treated as such. This is especially evident when you look at the correlation (approx. 0.61) between gold and bitcoin over the past twelve months.

Diversification and correlation

When compiling a portfolio, a well-balanced diversification is the most important thing to consider. Here, one must take into account risk-adjusted returns per asset and not least look at how different assets correlate with each other. According to portfolio theory, the absolute best way to achieve as high a risk-adjusted return as possible is to combine several assets without correlation, as this should, in theory, minimize the volatility of your portfolio.

However, one problem when it comes to choosing low correlation assets is that correlation is dynamic. This means that the phrase "historical return says nothing about the future" is relatively true in this context. We do not know how an asset will act in different types of scenarios. With that said, we can still build a portfolio that is diversified into different asset classes that have historically performed differently over different time periods. Cryptocurrency currency is one that has low or even negative correlation with other asset classes, and can therefore be used as a hedge with other alternative assets in a portfolio.

However, it is important to diversify even in its crypto exposure. We do not know today what the crypto market will look like tomorrow, two years or more later, and thus it is optimal to include more than just one cryptocurrency in its crypto exposure; for example, the five with the largest market cap. 

Bull & Bear Certificates

 Symbol ISINIndex reference instrumentFactorTypeCur.BidAsk 
BULL AAPL X10 VNT3
DE000VE4KKK7 Apple Inc. 10.00 Long DKK 0.158 0.162
BULL AAPL X10 VNT4
DE000VE53624 Apple Inc. 10.00 Long DKK 0.028 0.032
BULL AAPL X10 VNT2
DE000VF8D9Y9 Apple Inc. 10.00 Long DKK 0.316 0.322
BULL AAPL X10 VNT6
DE000VP2SBE3 Apple Inc. 10.00 Long DKK 31.68 32.15
BULL AAPL X10 VNT7
DE000VP343E3 Apple Inc. 10.00 Long DKK 25.53 25.91
BULL AAPL X10 VNT9
DE000VP485T0 Apple Inc. 10.00 Long DKK 2.54 2.58
BULL AAPL X10 VNT8
DE000VP4VGN3 Apple Inc. 10.00 Long DKK 12.77 12.96
BULL AAPL X10 VNT10
DE000VP69NS9 Apple Inc. 10.00 Long DKK 1.25 1.27
BULL AAPL X10 VNT11
DE000VP9V6S3 Apple Inc. 10.00 Long DKK 127.70 129.56
BULL WTI X10 VNT8
DE000VP29RK1 WTI Light Sweet Crude Oil Future Jan 2011 10.00 Long DKK 34.82 35.04
BULL WTI X10 VNT9
DE000VP3A688 WTI Light Sweet Crude Oil Future Jan 2011 10.00 Long DKK 27.84 28.02
BULL WTI X10 VNT10
DE000VP3L891 WTI Light Sweet Crude Oil Future Jan 2011 10.00 Long DKK 2.78 2.80
BULL WTI X10 VNT11
DE000VP3TYV5 WTI Light Sweet Crude Oil Future Jan 2011 10.00 Long DKK 13.92 14.01
BULL WTI X10 VNT12
DE000VP8PGH8 WTI Light Sweet Crude Oil Future Jan 2011 10.00 Long DKK 69.60 70.04
BULL WTI X10 VNT13
DE000VP9PWE0 WTI Light Sweet Crude Oil Future Jan 2011 10.00 Long DKK 139.24 140.12
BULL WTI X10 VNT14
DE000VP9SVM9 WTI Light Sweet Crude Oil Future Jan 2011 10.00 Long DKK 348.21 350.39
BULL OLIE X10 VNT9
DE000VP10DA2 Brent Crude Oil Future Feb 2021 10.00 Long DKK 0.002 -
BULL OLIE X10 VNT8
DE000VP1RE94 Brent Crude Oil Future Feb 2021 10.00 Long DKK 0.001 -
BULL OLIE X10 VNT11
DE000VP2QPN8 Brent Crude Oil Future Feb 2021 10.00 Long DKK 0.001 -
BULL OLIE X10 VNT12
DE000VP2SA70 Brent Crude Oil Future Feb 2021 10.00 Long DKK 0.02 0.024

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

29/11/2020 16:53:25

 

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