Passive Investing

There are two broad schools of thought when it comes to investing.

The first is passive investing. Passive investors diversify their portfolio across the entire market, usually by means of a low-cost index fund.

They don't try to beat the market. Instead they try to capture the risk & return profile of the entire asset class.

The second is active trading. Active traders try to beat the market by picking winners, and timing the market.

Here's how HodlBot supports passive investors.

HODL Indices

The HODL indices are total market indices designed to track the performance of the entire cryptocurrency market. Historically in equity markets, 80% of active professional traders fail to beat the index.

We created the HODL indices to act as a sensible starting point for our users.

HODL Indices

On Binance the following starter indices are available:

  • HODL10 (top 10)
  • HODL20 (top 20)
  • HODL30 (top 30)

On Kraken the following starter indices are available:

  • Kraken10 (top 10)

To read more about indexing, and reasons why to passively invest, check out this blog.

HODL10

Indexing methodology

The HODL10 weighs the top 10 coins by square root market cap.

Rebalancing Frequency

The default rebalancing period is 28 days. But you can customize it to whatever.

Special Considerations

The market cap is not computed as an instantaneous number. Instead, the HODL10 uses an exponentially weighted moving average of market capitalization in an attempt to escape some of the day-to-day volatility in the market. This way, the constituents do not change as often.

Pearson’s Correlation Coefficient with the Total Market:0.99

HODL10

HODL20

Indexing methodology

The HODL20 weighs the top 20 coins by market capitalization but caps each individual holding to 10%. Anything above 10% gets redistributed to all the coins below by weighted market capitalization until the entire sum of the portfolio adds up to 100%.

Rebalancing Frequency

The default rebalancing period is 28 days. But you can customize it to whatever.

Pearson’s Correlation Coefficient with the Total Market:0.98

HODL20

HODL30

Indexing Methodology

The HODL30 consists of the top 30 coins by square root market cap.

Rebalancing Period

The default rebalancing period for the HODL30 is every 28 days. But you can customize this to whatever you’d like.

Special Considerations

The market cap is not computed as an instantaneous number. Instead, the HODL30 uses an exponentially weighted moving average of market capitalization in an attempt to escape some of the day-to-day volatility in the market. This way, the constituents do not change as often.

Pearson’s Correlation Coefficient with the Total Market:0.99

HODL30

Kraken10

Indexing Methodology

The Kraken10 consists of the top 10 coins by market cap.

Rebalancing Period

The default rebalancing period for the Kraken10 is every 10 days. But you can customize this to whatever you’d like.

Pearson’s Correlation Coefficient with the Total Market:0.99

Create Your Own Index

If you're not happy with the HODL indices, and would like some additional customization, you can create your own index.

CYOI HodlBot

1. Choose the # of Coins in Your Portfolio & Set Percentage Caps

The first step involves selecting the # of coins that will go into your portfolio. For example, ranks 1–20 capture the top 20 coins by market cap.You can also create mid-cap and small-cap indices with different configurations e.g. 20–40, 80–100.

Since the cryptocurrency market is very top-heavy, the top 3 coins make up 80% of the market capitalization,you may want to give lower ranked coins a higher weighting. One way to do this is by using percentage caps.

A maximum cap denotes the maximum percentage any coin can be in your portfolio. Anything above a maximum cap gets redistributed to all the coins below by weighted market capitalization until the entire sum of the portfolio adds up to 100%.Conversely, a minimum cap specifies the smallest percentage of any coin you can have in your portfolio.

2. Select a Weighting Strategy

CYOI HodlBot

Once you’ve selected the # of coins to include and determined your percentage caps, it’s time to select a weighting strategy. There are three options:

  • Evenly weighted — Every coin in the portfolio has equal weighting.

  • Market capitalization weighting —Coins with larger market capitalizations are weighted more heavily. The percentage of any individual coin is the coin’s market capitalization value divided by the total market capitalization value of all the coins in the portfolio.

  • Square root market capitalization weighting —The square root weighting strategy has a similar function to maximum percentage caps. Since the cryptocurrency market is top heavy, taking a square root of market capitalization shifts some of the weightings from the highest capped coins towards the lower-capped coins.

3. Backtest Your Strategy

CYOI HodlBot

You don’t want to jump into your strategy blind. So after you’re done creating your index, it’s time to run a backtest against historical data to see how your portfolio would have performed in the past.

Fees and rebalances are taken into consideration for the backtest. For simplicity’s sake, we’ve scaled the backtest to start with a value of $1.

4. Save Your Portfolio

CYOI HodlBot If you’re happy with the results, you can save your portfolio & execute it right away. If you want to save it for later, you’ll see it show up under your saved portfolios. You can switch between any as much as you’d like.

Coin Blacklist

You can blacklist coins you don't want to have in your index. This will remove the coin from your portfolio and replace it with the next highest coin by market cap.