A research document published by Shrimpy, a cryptocurrency investment platform integrated by Binance, Bittrex and Poloniex, showed that HODLing is not the best investment method in the crypto sector.
As the managing partner of the venture capital firm Union Square Ventures (USV) Albert Wenger said in an interview with CNBC, the sector is still in its infancy and there is no guarantee that all important digital assets will survive future ups and downs. .
Cryptocurrencies such as Bitcoin and ETH, which have obtained a strong network effect in recent years, have a significantly higher probability of survival.
However, due to the volatile nature of the industry, even so, in a development phase, market conditions change drastically on a fairly regular basis.
The Shrimpy researchers found that adapting to market conditions by rebalancing a cryptocurrency portfolio far exceeds the HODLing method, which refers to the strategy of conserving the main digital assets over a long period of time.
The researchers performed four different tests with five groups. The first had two cryptocurrencies, the second had four, the third had six, the fourth group had eight and the fifth group had 10 virtual coins. The performance of each group was measured by four criteria: rebalancing every one hour, one day, one week and one month.
The fifth group had the highest number of assets in eight cryptocurrencies, with a rebalancing method in which each hour led to a gain of 234 percent. On the contrary, the rebalancing method of one month registered a profit of 41 percent.
Other groups also showed almost identical results, with the one-hour rebalancing method drastically surpassing the one-month rebalancing method.
The team of researchers stated:
"We can also see from these results, that only 10 out of 4,000 investment portfolios performed worse than HODL if they had rebalanced even 1 time each month. This means that, if you randomly selected 10 assets and rebalanced them at least once a month, you would have had a 99.75% chance of overcoming the purchase and maintenance during the last year. This is really amazing. The average performance of a portfolio with 10 assets and a rebalancing period of 1 hour was 234% BETTER than HODL. "
The analyzed portfolios were selected at random, without any prior research or elimination process, to increase the relevance of the study in a truly random environment.
The researchers said: "Rebalancing beats HODL by an average of 64%. After taxes, this represented 92% of all possible cryptocurrency portfolios. "
Rebalancing, per hour, is not a viable cryptocurrency investment strategy for everyone, especially for beginning traders and newcomers.
But, as the USV managing partner, Wenger, said, it is important to ensure that the funds are distributed among various digital assets and Blockchain projects that have the potential to function and achieve general adoption in the future, because not all cryptocurrencies will remain dominant in the future. the next years.
Wenger comments:
"Investors are putting a lot of money in this sector, because I think people are seeing that the winning block chain here will be worth a trillion, or a couple of trillion dollars. It is not unreasonable to think that. Certainly, for any particular project, there is a great chance that it will not work. If it works, the rewards will be very high. "