Willy Woo, the New Zealander who has been financing various start-ups for 15 years, is enthusiastic about the new possibilities of crypto currencies. In his contribution, he deals with the question of whether crypto currency index funds could beat Bitcoin.
Woo simulated investments in Altcoins to examine their developments over time. This could be used to determine whether an investment in the general fund of crypto currencies would make more sense as a passive investment strategy than direct Bitcoin trading.
Explanation: Index funds are passive investment strategies that invest passively in an entire market. An index fund on the S&P 500, for example, would buy all S&P 500 shares. The opposite of index funds are actively managed funds in which managers make decisions about which investments to buy and which investments to sell.
The Bitcoin secret
For his study about the Bitcoin secret, Woo simulated the investments from October 2013 until today, i.e. over a period of three years. Read more about it on onlinebetrug.de
The very long observation period for crypto currencies is particularly interesting because the bubble from 2013 and the bear market from 2014/15 were also taken into account.
Woo invested fictitiously in the ten most important crypto currencies for the study. Every 30 days he updated the list of crypto currencies, included additions and did not look at other currencies any further.
The result of cryptosoft
Woo played through various cryptosoft scenarios in which he included different Altcoins in the fictitious fund. Overview of the cryptosoft results:
Bitcoin vs. Top 10 Altcoins (measured by market capitalisation share)
Bitcoins outperformed the Altcoin portfolio by a factor of 3.8. Woo attributes this to the very divergent market sentiment: While the Altcoins even performed much better in the 2013 bubble, they lost enormously as a result and fell significantly below the portfolio result.
Bitcoin vs. Top 20 Altcoins (measured by share of market capitalisation)
Had the 20 strongest Altcoins been included in the portfolio, Woo says that their performance would have been almost identical.
Bitcoin vs. Top 11-20 Altcoins (measured by market capitalisation share)
Those who had selected the Altcoins with the highest market capitalisation in places eleven to 21 could be pleased about a significantly better result after the simulation: While the profit ratio of the Top 10 or Top 20 Altcoins was about 4.6 (BTC) to 1.2 (Altcoin), this strategy achieved a result of 4.6 (BTC) to 3.6 (Altcoin).
The idea behind this strategy is to look at Altcoins with particular growth potential and remove them from the portfolio as soon as they have passed the growth phase and are among the ten largest.
Woo considered this portfolio to be particularly promising because it was able to hold its own in the bear market and generated strong profits in the bull market. In the end, however, the Bitcoin investment won.
Bitcoin vs. Top 20 Altcoins, capped (investments by market capitalisation share)
Woo has also created another portfolio from the Top20 Altcoins, with the currencies being bought pro rata according to their share of the total market capitalisation. At the same time, one coin may account for a maximum of 25% of the investment, thus avoiding centralisation.
The result was significantly worse than that of the other strategies: 0.82 (Altcoin) to 4.6 (BTC) was the figure at the end of the simulation.
Bitcoin vs. Top 20 Altcoins (equal shares)
In order to achieve broader diversification, this strategy looked at the top 20 Altcoins, each with the same share of the total investment. The result, however, marks the taillight: with 0.64 (Altcoin) to 4.6 (Bitcoin), this was by far the worst result.
Summary: Is the Bitcoin unbeatable?
After his investment simulation, Woo comes to the conclusion that it is difficult to beat the Bitcoin with index funds. With the current situation on the Altcoin market, this is almost impossible, because the Bitcoin is siginificantly underperformed and the portfolio of several Altcoins is much more volatile.
He also criticizes the hypes in the world of crypto currencies: Many startups are strongly overestimated and shitcoins are overestimated. While there are strict regulations for IPOs, the issuing of an old coin is not really tied to special regulations. However, according to Woo, we will see many crypto investments in 2017. It would make more sense to use a fund strategy, he explains, despite the above results.