(This is a six-minute read)
Hold Bitcoin, hold Ethereum, we’re going to the moon; we’re going to Mars, they say. Just hold on for dear life.
I’m largely in agreement with the buy low/sell high concept, but if we superimpose this strategy onto the world of conventional finance, it’d be seen as risky and unproven. Sure, longtime Apple and Tesla shareholders have done well, but their eggs are kind of in a single basket. And it’s the same way with crypto.
Maximalists and Technologists may disagree with me, but I am in cryptocurrency for one reason: making money.
My question: are there other frameworks individual crypto investors can use, other than throwing all their money into just a few crypto assets? What about using the wisdom of crowds to manage our portfolio for you?
I wanted to test the following idea: what if we put just 1% of a $5000 investment into each of the top 100 cryptocurrencies? It’s beautifully simple: 100 cryptos, $50 invested in each one.
To stress test the model, we’ll factor in the worst timing—what if we decided to buy this portfolio at the peak of the 2017 bull run, full tulip-bubble-mania stage? I’ve measured this portfolio from December 17th, 2017 (Bitcoins last peak) to August 3rd, 2021, a little under four years.
And where would this portfolio be at now, while just about every single cryptocurrency is down at least 50% from all time highs? It doesn’t take a genius to buy at all-time highs, in fact, in retrospect, the owner of this portfolio could have, at one time, been called The Worst Crypto Investor in the World.
We’ll start with our results, take a look at analysis, and end on undeniably powerful implications about how investors can make a lot of money even while poorly timing the market and selling well below all-time highs.
Let’s get straight to the results:
Let’s compare this number to a few other assets and asset classes over the same time period to see how it stacks up:
The Best Performers
The truth about this investing strategy is that it counts on the average top 100 crypto doing relatively poorly, and a couple cryptos moving up exponentially in value. Three cryptocurrencies are now responsible for 68% of our portfolio (check the table below), and the top 10 are responsible for 82% of our portfolio.
The philosophy really relies on punching lottery tickets. This growth isn’t driven by 2x movers or 5x movers or even 10x movers, it’s grown by 20x movers. Winners explode while losers, in the worst case, will net a $50 loss.
The Stalwarts
The top two cryptos, bitcoin and ethereum, both appreciated in value along with remaining in the top spots, with ether performing about twice as well as bitcoin. Most analysts and investors agree that these two cryptocurrencies will continue to be relatively or completely dominant over the long term.
While the rest of the top 15 cryptos from 2017 aren’t necessarily our top performers, they are stalwarts. On average, however, they returned a negative return: $669 back on a $750 investment.
About 30 of 2017’s top-100 cryptocurrency stayed there, with most depreciating. There is only one cryptocurrency that simultaneously dropped out of the top 100 and increased in value, the asset-backed DigixDAO.
The Biggest Losers
The highest-ranked crypto that’s fallen out of the top 100 in the last four years? BitConnect, sitting at $456 at the 12/17/17 market-cycle peak and now literally worthless.
But still, our strategy has only wrapped up $50 in the coin, replacing good judgement with diversification. There are 13 other coins that have lost over 98% of their initial investment, meaning the $50 investment is now worth under a dollar.
Some duds that hold onto some value, like Populous, down about 90%, Bitcoin Gold, down about 80% (which dropped from the #3 spot to the #80). Unimportant for our strategy. Do you care about the lottery ticket that didn’t win? No, you care about the lottery ticket that makes you rich. This strategy works on the basis of probability, and you’ve gotta pay to lay.
The Non-Movers
A couple coins have barely changed in price at all, although we’re not worried about these at all. Stable coins count, but there are nine total cryptos that stayed between $45 and $55, representing almost $1000 worth of value.
Coins that have appreciated in value (the investments are now worth more than $50) represent 90% of our 2021 portfolio. Coins that depreciated represent just 10%.
The Results
Total market cap of the top 100 cryptos on December 17, 2017 was about $589 million. Today it’s over $1.53 trillion, which means a broad and constantly-adjusting index would’ve done even better than this Top 100 strategy.
So with our system, where we evenly expose our portfolios to the top 100 cryptos, regardless of market cap, we come out worse. An index strategy, with allocations that fluctuate and constantly rebalance might be more promising, but an individual investor won’t be able to rebalance their portfolio without high costs associated with constant trading.
You can create a more evenly-weighted index by adjusting your investment at the outset of your investment. The results of that strategy are listed below.
How Can You Make Money With This Information?
I think many altcoin investors are looking for superstar coins, those rare LINKs, DOGEs, and BNBs that explode 50x.
But if you’re looking for moonshots, it’s not the current top 100 that you should look at. It’s those special coins that enter the list, then stay there, that can get you incredible returns. Matic, AAVE, and BNB all presented tremendous opportunities that would’ve cancelled out the many coins that popped on to the Top 100 list just to fall back out.
What if you bought $50 of a coin every time it jumped onto the Top 100 crypto list? You get some pretty spectacular deals, but some pretty spectacular failures as well.
Binance Coin, for example, had it’s ICO (Initial Coin Offering) on July 25, 2017, at $0.15 per coin, almost pushing it into the top 100 cryptos by market cap at its ICO. But it took about two more weeks to finally pop onto CoinMarketCap.com’s Top 100 list on a 15 percent move to a $28,000,000 market cap (for reference, a 28 million dollar market cap won’t even get you into the top 500 cryptocurrencies today).
So what would that $50 investment net you today? A cool 35 grand, off of a mere $50 investment. That’s a 700x. And it’s not like crypto was unheard of at that point, Bitcoin had already made and broken fortunes. These opportunities still exist: AAVE popped onto the list at $.0264 a coin, which would now be $5000 just over 15 months later.
Doing some rough math on the amount of unique cryptos to ever enter the Top 100, this strategy would certainly be profitable, but to determine exactly how profitable requires a bit more spreadsheet work. It would also require more starting capital and a much more active trading style.
But that doesn’t mean it’s still a bad strategy一for every Binance Coin, 700 cryptocurrencies can go to zero and you’ll still break even on your investment. And BNB isn’t the only success story, not by a long shot. MATIC sprung into the top 100 cryptos on an 82% move up to just $.039 cents per token, now we’re sitting at $1.05. That would’ve turned your $50 into about $1350 today, and it’s down over 50% from its peak. Winners go up forever, but you only lose a maximum of $50 on your bad investments.
So What Does It All Mean?
This strategy and the data around it can be used to support several different (sometimes contradictory) arguments. Some will say that bitcoin is the most secure investment, others will say that all altcoins go to zero. Ethereum maximalists will continue to posit that one day ethereum will flip bitcoin.
Take the data how you will, but if we can agree on anything, it’s that patience and consistency in crypto will make you a lot of money.
Jack Niewold
Founder, Crypto Pragmatist
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