The overall portfolio strategy is to invest our funds dynamically and tactically in accordance with the macro backdrop. Since inception, we’ve had a short market crash (covid), a massive run-up (2020-2021), and then a grinding bear-market (2022-onwards).
During these three markets, I have invested very differently.
- I shorted Bitcoin during the liquidation phase of the pandemic.
- I went long various crypto assets, gold, and commodities during the following run-up.
- I hedged most long gold and commodity positions with short growth stocks during the ongoing bear-market.
The results thus far are summarized below:
As the macro backdrop changes, I will change my mind too. There are however some rules I will abide by.
- I will strive to keep volatility under control, but I will not aim at a certain risk. During bull markets, risk is fine. Under bear-markets, not so much!
- I will always hold some defensive assets. Even during 2020-2021 run-up, I held a lot of gold and value stocks to balance my aggressive crypto assets.
- I will focus on macro and aim at riding trends until they get exhausted.
- I will not YOLO-trade or FOMO into whatever is hot! I will be both conservative and opportunistic, striving to proper risk-manage the market cycle.
- For crypto, I will follow a combination of my algorithms, my macro thesis, and the Bitcoin mining cycle.
The crypto trading algorithms
I will not short crypto based on my algorithms anymore! I find the blow-up risk far too great for such trades. Instead, I have in concert with a great friend, back-tested, created and implemented 54 auto-trading bots at another exchange. The result for the last 12 months is shown below.
This is real trading, including commission and various mistakes along the way. There are no manual overrides, no buy and hold, only pure automatic bot-trading.
I started trading with 20800 USD and set Bitcoin as a reference index for the bot-performance. Those bots consist of the following assets nominated in USD and sometimes BTC as well.
| BTC | ATOM | ENJ | MATIC | TRX |
| ETH | COMP | ETC | OCEAN | UNI |
| AAVE | CRO | HBAR | OGN | VET |
| ADA | DCR | KSM | QNT | XRP |
| ALGO | DOGE | LINK | RVN | XTZ |
| ANKR | DOT | MANA | SAND | ZEN |
During the last 12-months, crypto have not been great. Yet, we are only down single digit percentage points! Most of the assets listed above are down 80 % or more!
All algorithms have been tested on historic data, and perform great in most time-series and on multiple crypto assets.
Below are the results of one of three Bitcoin algorithms tested from 1st of January 2020 until today.
For the more volatile altcoins, the performance is even more astounding!
The Mana-bot is up 7895 % outperforming the Mana-token by 3,6x. The Bitcoin-bot is up 946 % outperforming buying and holding Bitcoin by 3,8x.
Those two assets represent the lower and higher distribution of the 54 back-tested algorithms and assets. Please note the following
- The algorithms have run for about a year. That means they are tested, but the last year have been a bear-market, and as you can see from my performance chart for real trading, I have not made any money yet!
- There are six different algorithms deployed on 54 different bots of about 45 unique crypto crosses (some are duplicates with more than one algorithm per asset).
- The bots are either long the asset or in cash.
- If crypto behaves different in the future, the algorithms may prove much less efficient, even destructive! I do not know the future. Neither do my crypto-bots!
- As you should be able to see from the charts above, the bots Achilles heel is volatile sideways trading. During such times, the bots generate a lot of fake signals, costing us commission and tricking us into buying high and selling low.
- Both real world implementation and back-tests of all 54 bots shows increased performance and reduced risk. We also see extreme volatility compared to most traditional assets, a success rate per trade in the 30 – 40 % range and several draw-downs above 30 percent!
How I will implement the crypto bots
I would like the following three indicators to “light green” prior to putting on too much crypto risk in my portfolio.
- The overall macro environment being at least not bearish.
- The Bitcoin mining cycle being in the right spot.
- The crypto-bots suggesting long for the specific asset.
As I am writing this, I am considering adding some crypto to my portfolio. Two of three indicators are bullish. The bearish one is of course the overall macro environment. That is not a small thing of course, but it may matter less, as most crypto assets have dropped more than 80 %, peak to trough already!
I will rarely hold many different crypto assets. There is no way I can trade too many of those, as eToro do not offer an API for automatic trading. I will therefore have to trade manually and set alarms for each asset I chose to follow. I do however intend to sleep, eat and attend my regular day-job, so some performance issues will occur due to human limitation. As of now, I am considering adding these crypto assets to my watch-list:
- 30 % – BTC
- 20 % – ETH
- 10 % – MANA
- 10 % – SAND
- 10 % – AVAX
- 10 % – MATIC
- 10 % – ENJ
Percentage points here do not correspond to my portfolio, but my total crypto asset holding in my portfolio! This list is only intended to give you an idea of what I am considering. Sometimes I may only hold one or two assets, even zero!
The portfolio construction
During my three years plus of trading on eToro, and twelve years on other platforms, I have learned that it is important to embrace flexibility. When facts change, it is wise to change one’s mind too. Due to that, I find it difficult to inscribe a portfolio construction “in stone”. The structure below is however how I think about portfolio construction in general. Please note that the listed asset classes are purely put there as an example. This is not my portfolio, neither now or in the future!
30 – 55 % – Defensive assets
- Gold
- Value stocks/ETF’s/Indices
- Bonds
- VIX futures and volatility-hedges
10 – 25 % – Hybrid assets
- Cash and/or foreign currencies
- Shorts (in some cases shorts are defensive, other times aggressive)
30 – 55 % – Offensive assets
- Commodities
- Commodity producers
- Precious metal miners
- Crypto assets (0 – 35 % varying on my confidence in the space)
- Growth stocks
Most of the time, I intend to hold 45 % defensive, 10 % hybrid, and 45 % offensive assets. A bear-market is by the way, probably not “most of the time”. I know I deviate from “most of the time” at the time of writing this post.
I expect my crypto assets to perform much better than other assets. That is the nature of this extremely volatile asset class, especially when properly risk managed. As gains in the space increases, I will re-balance to defensive assets. This is both to secure gains, but also to limit the portfolios volatility. I have to trade responsibly in order to remain a Popular Investor here at eToro, something I will try my best to do, during both bear and bull markets!
A short market commentary
I will not suddenly buy a whole lot of crypto. I may start adding a position if the asset class starts breaking its correlation to Nasdaq. I do still believe gravity will pull risk assets down, but I think it is possible that crypto, at least bitcoin, may turn around prior to growth stocks. This is due to bitcoins own mining-cycle.
As you can see from the chart above, bitcoin have previously traded in a repeatable pattern, though somewhat dimmed as volatility have decreased at each cycle. I find it plausible that the bottom is in, but for that to be true, I would like to see its correlation to Nasdaq break. The BTC bots do however provide a risk-management benefit, so I may add a small position soon.
Consider signing up to eToro, using this referral link.
You can find my profile at eToro here:
https://www.etoro.com/people/aliascryptus