Fund of cryptocurrencies and cryptoassets

The idea of a cryptocurrency fund has been kicked around in the community for some years. Recently in the topic Idea: on the way to “good money” - a crypto coin ETF based on PeerAssets I posted my concept of a fund made of crypto currencies and assets that has minimal volatility.

Since then I have done some research on basket weighting strategy, constituent coins, and operation parameters by making test runs using data from 2013. The discussion was mainly on .The following are some preliminary results, posted here for better visibility.

The following charts are proof of concept test results using a basket of relatively large cap, long-life coins of mixed technologies. The basket or the three tests are difference due to that less coins existed in older times.

Figure 1

Figure 1 abve is a bull market test (normalized to $1 initial Net Asset Value NAV) from 2015-01 to 2016-11. Btc price (blue) appreciated to 320%; operationally optimized Fund NAV (green) changes to 370%. The Fund out-performed btc by 9.4% in Compound Annual Growth Rate (CAGR). The red curve is the index of minimal variance, which is less volatile than btc price.

Figure 2

Figure 2 is a recovery market test from 2014-02, after 2013 bubble, to 2016-11. Btc price (blue) changed to 90% the Fund NAV (green) changes to 97%. It out-performed btc by 3% in CAGR

Figure 3

Figure 3 shows a rollercoaster market test from 2013-10, into the 2013 bubble, through its burst, to 2016-11. Btc price (blue) changed to 380%. The fund NAV (green) grew to 590%. The Fund out-performed btc by 15% in CAGR.

As show above, in different market climate the minimal variance index is more stable than bitcoin alone, with the help of a basket cryptocurrencies. Choosing operational parameters can increase return of investment without increasing volatility compared with bitcoin.


Impressive data crunching!

That means it’s possible (has been possible in the past) to create a basket of crypto coins that’s more stable than BTC, even though most crypto coins are tied to BTC and tank when BTC/USD surges and surge when BTC/USD tanks.
If it has been possible in the past, it can be possible for the future as well!

If you hold the fund long enough you have good chances to find a point of time when you can sell it at a gain (relative to having kept BTC).
The price in USD is a different matter.

I am still on the fence whether or not should this fund be based in Bitcoin or USD.
Bitcoin is just too volatile and manipulated to be anchored in, but then again majority of markets are most liquid against the Bitcoin.

Both has benefits and drawbacks.
Why not using more than one price - ETF/BTC and ETF/USD?
You (read: the issuing corp) don’t have to trade in both pairs. In fact it would rather be limited to ETF/BTC if you want to keep a liquid reserve in multisig.

If fund is to pay dividends in Peercoin, why not base trading against Peercoin? :slight_smile:

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I like the idea, but PPC markets are nowhere near as liquid as BTC markets.

It does not have to be liquid to work, it would just use Peercoin as reference and count profits and losses in Peercoin rather than something else.

Don’t you agree it would be beneficial or even crucial to support trade in the pairs in which the fund is priced?

The Fund trades all coins with BTC and still becomes stable in USD, because the weights of the constituent coins are determined with their USD prices (crypto/btc x btc/usd ). The USD price is parametric and the Fund does not need to touch a single USD.

The fund holds its constituent coins in the reserve. The value of its reserve, calculated in USD, is the NAV (ignoring liabilities). The Fund trades the altcoints in the reserve with BTC in the reserve according to the algorithm and operational rules formulated based on statistics and optimized by testing. The performance of resulted NAV is shown in the figures.

No. See the concept post mentioned in the OP.

Ok, thought so. Thx.

If the ETF is priced in apples, but you pay in oranges, you might find out that the friction in the apples/oranges trading pair is big enough to make a difference.

But if everyone is using apples to trade you should price in apples even if your prices tend to be closer to oranges.

All I’m trying to say is that I think it makes sense to use the price of supported trading pairs.
Of course it makes sense to support trading pairs, which are used by everyone, or which have the highest trading volume.

Then apple is the USD and orange BTC. It’s not a coincidence that the apple/orange pair is by far the most liquid one.

The real problem is in the smaller cap coins. If the Fund has $1M NAV it can really disturb the market when selling/buying them.

That’s the prime reason why I thought of liquidity requirements of basket elements: high liquidity at low spread over some time.

I know that I have defined neither the liquidity, nor the spread or time, but I’m aware that each of those factors plays a role.