Multi-Asset Portfolios with Cryptos

Cryptocurrencies are making strides towards mainstream acceptance as an asset class. The SEC’s approval of Bitcoin ETFs and Ethereum ETFs this year marks a particularly decisive moment. In this piece, we explore an active crypto strategy and assess the performance impact of a small allocation to this strategy on a macro equity portfolio represented by SPY ETF, benchmarked against the S&P 500 Total Return Index*. 

Firstly, we develop a crypto-only momentum strategy for Bitcoin (BTC) and Ethereum (ETH), activated by the entry signal when Bitcoin is above its 50-day simple moving average. When there are no existing positions and the entry signal activates, we adopt an equal-weighted long position on BTC and ETH. We exit the positions when the entry signal is false. Using OdinUltra, a no-code specialized financial AI platform, we can quickly evaluate this strategy in minutes with robust data-driven analytics support. In the following charts, we illustrate the NAV curves of each crypto using 100% of the AuM versus the benchmark of holding BTC.

Source: OdinUltra

Secondly, we assess the impact of allocating only 5% of a portfolio to the aforementioned crypto momentum strategy only when Bitcoin is above its 50-day moving average. The remaining 95% is allocated to SPY (SPDR S&P 500 ETF Trust), with quarterly rebalancing. When the indicator is false, we maintain 100% of the portfolio in SPY. In the chart below, we display the performance of this combination compared to the benchmark of the S&P 500 Total Return Index from May 1, 2019, to the present. The portfolio outperforms the benchmark in performance while maintaining a similar maximum drawdown and other risk metrics. For multi-asset investors, incorporating crypto strategies could enhance diversification and potentially yield significant returns in a multi-asset portfolio.

OdinUltra enables users to compare the performances of various strategies or combinations thereof. Our platform supports backtesting these strategies through advanced technology infrastructure, streamlining processes such as data cleansing, modeling, and validation. Detailed performance metrics are readily available from OdinUltra. Additionally, users can download both historical and live positions, along with NAV details, for further analysis if so desired.

In closing, cryptocurrencies remain extremely volatile and speculative as it is still a risk asset with no fundamental drivers. Actively managed cryptocurrency sub-strategies could reduce risk and careful allocation to this emerging asset class could boost portfolios.