This is the follow-up to last week’s 90/10 trading portfolio. In that one I showed that rather than use the 60 / 40 portfolio from traditional finance, you could use a 90% yield farming 10% investing strategy to beat the market.
It not only returned better overall–relative to buying and holding BTC since 2018–but it was significantly less volatile. It’s the sort of thing that really pays off in a time like the present. Here’s how the portfolio has performed over the past week. First up, here’s the all-time performance.
You can see the big dip there at the end. To get a better view of this last year, here’s a zoom-in on just YTD performance.
You’ll notice that, yes, the 90/10 portfolio did take a little dip, because BTC is 10% of that portfolio after all, but not too much of one. Since the revelations about FTX we’ve got:
- BTC is down about 9%
- The portfolio is down about .73% (= .9% BTC loss + YF gains)
Of course, those calculations don’t include transaction (TX) costs. If you were actively yield farming this past week, which is the safest form, you probably incurred some of those costs. Let’s be pessimistic and assume that TX fees + slippage = a 1% loss. Even in that case, then you’ve got 9% v 1.73%.
And that’s the point. The portfolio does extremely well in these terrible environments. BTC was down better than 17% over the week at one point. This portfolio had none of those swings. And that’s why it can serve as a passive-income stream.
In this lesson, we’re going to review some ways to improve the returns of the 10% — which is the “bounce back” and “booster” for this portfolio. Our paid subscribers always get access to the relevant signals, but everyone can benefit from a description of the strategies. Let’s start with the most obvious one–saving money by avoiding the tax man..
1. The Tax Question
I started thinking about this strategy when I wondered if BTC miners could be doing something better with their money–as opposed to HODL-ing or selling for stablecoins. The crux of the the matter seemed to turn on this point: a long-term hold can save you quite a bit in capital gains. And if you’re not in the US, similar tax laws probably apply to you.
So, you need to gain something better by trading actively if you are going to do something other than HODL.
Yet even if you were going to just HODL, you could probably do better than just HODL-ing BTC. You could HODL ETH or–given the inevitable dominance of BNB from this last week–BNB. I tend to prefer ETH though, since it’s more decentralized and all the problems we’re seeing right now stem from centralized sources.
But we have very low-effort strategies at our disposal to outperform HODL-ing, so let’s review those.
2. Crypto Maxi
An obvious strategy we have for boosting returns over BTC is the crypto maxi strategy. This one is 100% invested in cryptos all the time–which is why the “Classic” version of the strategy just alternates between BTC and ETH according to momentum algos.
Here is how it’s performed since 2018 (as compared to BTC HODL-ing).
And here’s how it’s performed this year.
While the strategy has held BTC about 80% of this year, it’s still doing about 12% better because it switched into ETH at various points.
The real strength of this strategy is in the bull run, as ETH massively outperforms BTC then. That’s why it has a lifetime gain of 635% v 29%.
It might make sense to have an opposite strategy, then, which performs especially well during a crypto winter. Enter Crash Cost Averaging
3. Crash Cost Averaging (CCA)
To recall, this is the strategy that changes dollar cost averaging with 2 modifications. What dollar cost averaging does is buy (1) a fixed amount at (2) fix time intervals.
The reason that doesn’t work well during a crash–especially for cryptos–is that crash are non-linear phenomena and that is a linear strategy.
To make it linear it would make sense if you bought more as the crash continued. That way you get a lower overall cost basis.
Next, it would make sense to buy not at fixed temporal intervals, since that’s not the relevant unit of discernment, but fixed % declines. We can use crypto crash history, moreover, to identify statistically likely entry points.
As far as sell points, the strategy sells according to our momentum algorithms. Here’s how the strategy has performed since 2018.
And here’s how it’s performed just this year.
As you can see, it’s positive for the year. In fact, it only strays into loss territory when BTC or ETH make a new all-time low.
4. Concluding Thoughts
Let’s bring these points together. Our goal in this piece has been to cover three ideas about how to boost the 10% portion of the 90 / 10 portfolio. In summary form, we’ve got the following.
- HODL – has tax advantages, is low effort, has a ton of volatility and is not the best performer by way of overall return.
- Crypto Maxi – A bit higher effort (about once every 3 weeks for a trade), does outperform in a crypto winter, but is a real winner in the bull run.
- CCA – relatively low effort, tends to do well in crypto winters, may be out-performed in a bull run though.
The AOTB Dynamic Portfolio, our flagship strategy, performs the best in a bull run and stays relatively even during a crypto-winter (it’s down about 4% for the year). It’s higher effort than CCA or the Crypto Maxi, which is why I didn’t discuss it here. My goal has been to outline very low effort strategies.
Of the strategies discussed, you could always do all 3 — HODL for part, Crypto Maxi for another, and CCA for another. Heck, if you had the time, you’d really boost returns with the Dynamic portfolio.
I’ve been trying to think of a way to put this all on auto-pilot. A hedge fund is an obvious solution, but it’s only open to accredited investors. We do have one idea that legal has approved, but it’s still higher effort than I wanted. So, we’re going back for a second approach–and I think it has a good chance of succeeding.
I’ll keep you all updated. For right now, we have the subscriber plans–clearly–and our free lessons (covering each of these strategies) are available to everyone on the website.
This week I wrote a number of pieces that are related to this post, so you might want to have a look if you’ve missed them.
That’s it for this week. Remember to join us on Discord if you haven’t already.
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