Shrimpy cryptocurrency portfolio management is a platform that helps investors curate a portfolio with automated investment strategies. With the company’s portfolio experience, the Shrimpy team published a study that gives an informative technical analysis comparing two types of cryptocurrency investment methods: rebalance against holding (hodl).
The Portfolio Firm Shrimpy Looks at the Best Method of Cryptocurrency Investment — Rebalance vs Hodl
If you have been into cryptocurrency for a while now you’ve probably heard the expression ‘hodl’ which is a purposely misspelled word for digital asset holders or hoarders who hold their coins for a long time without spending them. These type of people believe that someday their bitcoins will be worth far more than they are today. Even during the big market dips, ‘hodlers’ continue to hold. Another form of investment that some cryptocurrency proponents use is called ‘rebalancing’ which involves a portfolio rebalance only when the asset allocation has dropped below a predetermined threshold. Unlike holding and weathering bearish market action, rebalancing protects investors from being constantly exposed to market dips.
Rebalancing Beats Hodl by a Median of 64%
Shrimpy used a variety of data to help determine which investment strategy was more profitable such as a complete year of market data, the creation of a rebalance structure, the number of assets in a portfolio, and asset selection. Further Shrimpy tested multiple portfolios with 2-10 assets each. Within the study, Shrimpy had found that rebalancing outshined hodling in a few instances.
“There are two major relations we can draw from this study — The first relation is that increasing the number of assets increased the performance of a portfolio,” explains Shrimpy’s research. “The second relation is that decreasing the rebalance period (increasing rebalance frequency) increased the performance of a portfolio. Therefore, the ideal portfolio was rebalanced frequently and also contain numerous assets.”
Rebalancing beat Hodl by a median of 64%. After taxes, this represented 92% of all possible cryptocurrency portfolios.
Ten Asset Portfolio With a 1-Hour Rebalance Period Outperformed Hodl by 234%
Shrimpy’s experiment also compared portfolios that hold ten assets but have a different rebalance period, which showed some interesting statistics.
“If you randomly selected 10 assets and rebalanced at least once a month, you would have had a 99.75% chance of outperforming buy and hold over the last year — This is truly incredible,” details the research.
The median performance for a portfolio with 10 assets and a rebalance period of 1 hour was 234% better than Hodl.
The Cryptocurrency Spend vs Hodl Debate is Years Old, But Is Being Argued Fervently Once Again
The study goes against the many people who believe hodling or hoarding is the best method of investment. For years there has been a long debate on which form usage is better for long-term cryptocurrency adoption, and lately, there’s been a new wave of people bolstering the idea of ‘spend and replace,’ most notably with the Bitcoin Cash (BCH) crowd. One wallet called Cashpay allows users to spend and replace their BCH every time they buy stuff with bitcoin cash. Holding can definitely bring people gains especially over long periods of time, but rebalancing seems to be less risky and more rewarding according to Shrimpy’s study.