Note: I posted this originally back on 21st November last year. I posted here as an intro to my forthcoming posts I'm going to do on this project.
I’ve decided to document my journey with an experiment in crypto investing that involves creating a Crypto Index Fund of sorts.
With a nod and hat tip to Brett McLain (http://blog.mclain.ca/31-crypto-currencies-week-1/) who was the inspiration for this experiment, as he enters week 14 of his own.
Where my experiment differs is in the number of cryptos selected, as well as the style of selection. Brett went with the Top 30 (actually he used 31 in the end) by Market Cap.
For my experiment, I shall be selecting 35 cryptos that I’ve hand selected.
First, let’s get the rules set.
The Rules
- 35 cryptocurrencies.
- $350 total.
- $10 of each, exactly. So coins like Bitcoin that are worth considerably more than $10, will be piece bought.
- All bought on same day. Price paid is whatever price they were going for that day.
- Weekly update, with analysis of how things are going.
- Similar to the other $10 in x cryptos experiments, only this is my 35 specially chosen cryptos, not the top 35 by market cap.
- Mix of established coins, along with some very new projects and hedges against other projects (for example, BTC & BCH).
- All cryptos were bought on Tuesday 21st November.
- No more buying after the first day.
- No rebalancing or selling.
- Holding for 1 year.
Why Am I Doing This Experiment?
Primarily, this is a thought experiment for me. It’s also a method that I hope proves whether a diversified portfolio is more effective in the long run than holding a single (or few) cryptos.
I have longterm holds in a numbers of coins over a long period of time. This small-scale thought experiment is separate to that.
And why do I think an “crypto index fund” is such a good idea? This:
That’s a picture of the whole crypto market cap over the last year. It’s rising constantly (especially in the last few months), and is only set to grow more (and more rapidly).
So an index fund that tracks a large segment of the market should be a really good thing. My profit will rise as the overall crypto market cap rises. That’s what this experiment is all about.
And if it isn’t a good thing, we will see.
The Cryptos
Here are the cryptocurrencies I selected (listed by price):
| Crypto | Symbol |
|---|---|
| Bitcoin | (BTC) |
| Bitcoin Cash | (BCH) |
| Dash | (DASH) |
| Ethereum | (ETH) |
| Zcash | (ZEC) |
| Monero | (XMR) |
| Litecoin | (LTC) |
| NEO | (NEO) |
| Gas | (GAS) |
| Qtum | (QTUM) |
| Lisk | (LSK) |
| OmiseGO | (OMG) |
| Waves | (WAVES) |
| Walton | (WTC) |
| Metal | (MTL) |
| Vertcoin | (VTC) |
| Salt | (SALT) |
| Metaverse ETP | (ETP) |
| Neblio | (NEBL) |
| Ark | (ARK) |
| Komodo | (KMD) |
| EOS | (EOS) |
| Modum | (MOD) |
| AdEx | (ADX) |
| Kyber Network | (KNC) |
| PowerLedger | (POWR) |
| iExec RLC | (RLC) |
| Civic | (CVC) |
| Obsidian | (ODN) |
| Rise | (RISE) |
| VeChain | (VEN) |
| Ripple | (XRP) |
| Chainlink | (LINK) |
| Ripio | (RCN) |
| Request Network | (REQ) |
A lot of research and thought went into selecting these 35. I don’t want to get into too much detail about why I chose individual cryptos (although that might come later).
First, I will answer the two most macro of questions first:
- Why 35?
This is pretty simple. I wanted a large enough amount that would justify an “index fund” without being unwieldy. As this isn’t a traditional index fund, it would be ridiculously complex to buy 100s of cryptos individually and then be able to store them somewhere.
I think 35 is a good number that allows for diversification and balance, without being too complex and unwieldly.
- Why these cryptos?
Whether all of these 35 cryptos will turn out to be successful (and I define success as giving me at least a 1.5x ROI in a year), will be an interesting part of the experiment.
I chose these 35 for specific reasons individually and I made sure to choose a number of project types - straight up currencies, platforms, dApps, protocols, etc.
In this index fund, there will be small total supply coins, large total supply coins, large market cap coins, small market cap coins, old projects, new projects and everything in between.
But all of them are good projects, I believe. Time will tell and I invite questions and discussion about the cryptos themselves in the comments.
Based on their Market Cap rankings, I put the 35 cryptos into a number of types that I’ll explain a bit here:
The Big Boys
The Second Tier
Emerging Upstarts
The cryptos in The Big Boys section are pretty obvious. The established and time-tested players like Bitcoin, Ethereum and Dash fit here.
In the Second Tier we have the potential future stars. Cryptos like NEO, OmiseGO and Lisk fit comfortably here.
Whilst The Emerging Upstarts are filled with newer projects that are super solid, for example: Walton Chain, PowerLedger and Chainlink.
By selecting older and newer projects in this “crypto index fund” I’m hoping to leverage both money coming into the established/known cryptos, as well as potentially making bigger market cap jumps with some of the new projects that have far to run.
Potential Issues With the Experiment
Some obvious issues with my method became apparent pretty quickly:
- Firstly, certain cryptos will naturally have an advantage (at least early on), if they were down that day compared to their usual average.
Some coins were near all-time-highs, which will naturally skew the experiment a little and make it a little harder for them to succeed…at least in the early stages of the experiment. For example, Bitcoin happened to be very near its ATH when I bought it for the experiment. NEO and AdEx were also very near their tops.
The natural volatility of Bitcoin meant that I wasn’t able to hit exactly on $10 for each, and some of the values are therefore a little off-kilter because of that. I did the best I could.
Due to the relatively small amounts involved, I probably won’t be taking these off the exchanges I bought them on (transaction fees). Leaving on exchanges isn’t ideal (for obvious reasons), but this experiment is more about the thought experiment for me. My large holdings are in cold storage.
Moving Forwards
I bought these cryptos on Tuesday 21st November. I will, therefore, be doing a weekly update every Tuesday where I chart the experiment’s progress.
I'll be including charts/graphs in future updates, so that we can see a visual representation of what's going on.
I’ll be making a site to chronicle this experiment and give it a home.
Let me know what you think of my plan - I’m open to constructive criticism and any thoughts you might have.
Sources and Helpful Resources
Here’s some of the many resources I consulted for this project:
https://digitalassetdbtest.azurewebsites.net/
http://aenigma.capital/Leveraging-the-Cryptoeconomic-Machine.pdf