21Shares Releases Sixth State of Crypto Report: Crypto Assets Portfolio Allocation
The State of Crypto Report provides an in-depth look at the crypto industry over the past few months, as well as insights into portfolio allocation
NEW YORK, June 1, 2022 – 21Shares AG ("21Shares"), the world's largest issuer of cryptocurrency exchange traded products (ETPs), today released its sixth issue of its State of Crypto Report. The report overviews industry happenings over the past few months and provides data on optimizing portfolio allocation for various risk profiles and portfolio strategies based on crypto-native indicators, sourced from the blockchain.
The findings underscore that adding crypto assets, including bitcoin or the top five crypto assets based on market cap, to a portfolio can drastically improve risk-adjusted returns. Additionally, including 5% large-cap crypto assets provides a better risk-return tradeoff than a bitcoin-only portfolio, as measured by the Sharpe ratio. When combining all return and risk measures across different rebalance frequencies with the trading cost estimation from annualized turnover ratio, rebalancing on a quarterly basis provides the best trade-off for investors.
Other key findings include:
- Crypto assets are risk-on assets: Over the last eight years, bitcoin has maintained a relatively low correlation with the S&P 500 (~0.15). In March 2020, during the COVID-19 induced market crash, the correlation of bitcoin and the S&P 500 was 0.53. In this risk-off environment, like any other asset except gold, bitcoin reached all-time high levels of correlation with the S&P 500 (0.69). In the short term, especially during distressed times, correlation levels across asset classes increase but longer term, crypto is uncorrelated and continues to be one of the best performing asset classes of the past decade.
- Rebalancing mitigates market drawdowns: Rebalancing is critical for portfolio construction to smooth out swings across major asset classes — especially for crypto assets including bitcoin and Ethereum or a basket — and harvesting the long-term premium leads to diversification benefits. Quarterly rebalancing provides the best outcome.
- Performance does not always correlate with timing: While many investors argue that timing matters in crypto investing, the data says otherwise: regardless of when bitcoin was added to a portfolio, 90% of the time, the strategy outperformed the benchmark in the first year, and 100% of the time, the strategy exceeded it in the next three years.
“Between the macro trends driving the market and the emergence of new blockchain-based applications, our financial system as we know it is experiencing a paradigm shift,” said Eliézer Ndinga, director of research at 21Shares. “Even with the current volatility of the crypto market, our research empirically shows that portfolios with crypto assets outperform traditional portfolios. We’re continuing to see more use-cases for crypto and greater adoption — particularly from companies and institutions — who have come to realize how strongly the asset class performs long term despite ups and downs.”
The research team at 21Shares built a rebalancing algorithm combining a blockchain metric with a modern portfolio theory. This algorithm is the first of its kind and constructs a dynamic rebalancing strategy based on the Net Unrealized Profit Loss ratio. The algorithm sets a logic to gradually increase the rebalancing weight towards distress times and vice versa.
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
Arielle Sobel, Head of Global Communications
21Shares takes innovation to the next level with the largest suite of cryptocurrency exchange-traded products (ETPs) in the world. In 2018 it pioneered the world's first cryptocurrency index listing on the SIX Swiss Exchange, and it continues powering its cryptocurrency franchise with cutting-edge research and groundbreaking approaches to product strategy. 21Shares aims to provide all investors with an easy, secure, and regulated way to buy, sell, and short cryptocurrency through existing bank and brokerage accounts. 21Shares is a Swiss company registered in Zug, Switzerland with offices in Zurich and New York City. For more information, please visit www.21shares.com.