An introduction to portfolio construction
Cryptocurrencies have become synonymous with high volatility. Unlike traditional financial markets, where asset prices reflect years of economic data, regulations, and investor behavior, crypto assets often experience sharp price movements based on a mix of technological developments, speculative interest, regulatory news, and market sentiment. For instance, Bitcoin, the first and most well-known cryptocurrency, has seen its price surge from mere cents in 2009 to an all-time high of nearly $65,000 in April 2021, only to be followed by significant drops.
Such volatility is not exclusive to Bitcoin; it is a characteristic shared across the cryptocurrency market, impacting portfolio construction by necessitating strategies that can adapt to rapid price changes. There’s a famous chart in crypto known simply as “the rainbow chart” which displays Bitcoin’s price in the context of halvings and general market sentiment. To illustrate the example of this volatility, look no further than the rapid price appreciations and depreciations present throughout the last decade.
The cryptocurrency market operates in distinct cycles, each comprising phases of accumulation, uptrend, distribution, and downtrend. These cycles can be influenced by a wide range of factors, including technological advancements, regulatory changes, macroeconomic trends, and shifts in investor sentiment. Unlike traditional financial markets, which may follow longer, more predictable cycles, crypto market cycles are relatively short-lived and can be highly unpredictable.
Understanding these cycles is crucial for effective portfolio management in the crypto space, as it enables investors to make informed decisions about when to enter or exit positions. The volatility and unique market cycles of cryptocurrencies pose both challenges and opportunities for portfolio construction. Cryptocurrency markets are known for their rapid price swings.
For instance, Bitcoin, the leading cryptocurrency by market capitalization, has experienced several notable fluctuations. In 2017, it skyrocketed from around $1,000 to just under $20,000, only to fall back to around $3,200 by the end of 2018. Diversification, a cornerstone of traditional portfolio management, takes on a new dimension in crypto markets. Investors may need to consider not only a range of different cryptocurrencies but also how these assets correlate with traditional financial markets and with each other. Additionally, the high-risk nature of crypto investments necessitates a more dynamic approach to portfolio rebalancing, risk assessment, and the use of advanced risk management tools and techniques.
Diversification involves spreading investments across various asset classes (such as equities, bonds, real estate, and commodities) and within asset classes (such as different sectors, industries, and geographies) to reduce exposure to any single asset or market movement. The rationale behind this strategy is that different assets perform differently under various economic conditions; while one asset class may be underperforming, another might be experiencing growth, thereby balancing the portfolio's overall performance. This strategy is crucial in traditional financial markets because it helps in smoothing out the volatility and reducing the portfolio's overall risk. For example, a well-diversified portfolio that includes both stocks and bonds is less likely to experience the full brunt of a stock market downturn, as bonds typically offer lower volatility and may act as a cushion against stock market shocks.
Risk management in traditional financial markets is closely tied to asset allocation—the process of determining the proportion of each asset class in a portfolio based on the investor's risk tolerance, investment horizon, and financial goals. Effective asset allocation can significantly influence a portfolio's risk and return profile. For instance, a portfolio weighted towards equities might offer higher growth potential but comes with increased volatility, making it more suitable for investors with a higher risk tolerance and a longer time horizon. Conversely, a portfolio with a higher allocation to bonds or other fixed-income securities might be better suited for conservative investors seeking stability and regular income.
Hedging is another sophisticated risk management technique used in traditional financial markets. It involves using financial instruments, such as options and futures, to offset potential losses in investments. For example, an investor worried about a potential decline in the stock market might purchase put options on a stock market index. If the market falls, the gains from the put options can help offset losses in the portfolio's equity holdings. While hedging can be a powerful tool to manage risk, it requires expertise to execute correctly and can introduce additional costs.
Risk management and diversification strategies are not set-and-forget. They require continuous monitoring and periodic rebalancing to ensure the portfolio remains aligned with the investor's goals, risk tolerance, and the changing market conditions. Rebalancing involves buying or selling assets in your portfolio to maintain your original asset allocation. This might be necessary after significant market movements that could skew the portfolio's allocation, potentially exposing it to greater risk or altering its expected return profile.
While traditional portfolio theory principles, such as the aforementioned diversification and risk management, remain applicable, they must be adapted to account for the specific characteristics of crypto markets. For example, the extreme volatility of cryptocurrencies means that the standard metrics used to evaluate risk and return in traditional markets may not be directly transferable. Investors and portfolio managers need to develop new frameworks and metrics that can better capture the nuances of crypto asset behavior.
This extreme volatility demands a dynamic investment strategy. Crypto investors often find themselves needing to stay abreast of market trends, news, and technological developments more frequently than in traditional markets. The rapid changes in prices can render a previously balanced crypto portfolio too risk-exposed or too conservative in a matter of days or weeks, necessitating more frequent rebalancing to align with the investor's risk tolerance and investment goals.
The unpredictability of crypto markets means that strategies such as dollar-cost averaging become especially relevant. Dollar-cost averaging involves investing a fixed amount of money at regular intervals, regardless of the asset's price, to reduce the impact of volatility on the overall purchase. This strategy can help mitigate the risk of investing a large amount at an inopportune time when prices are temporarily inflated.
Technological innovation and regulatory changes are two critical factors that influence the crypto market's volatility and cycle structure. Breakthroughs in blockchain technology, the introduction of new cryptocurrencies, and enhancements in crypto market infrastructure can have significant implications for portfolio construction. Similarly, regulatory announcements can lead to sudden market movements, underscoring the importance of staying informed about global regulatory trends and their potential impact on crypto assets.
Managing different types of portfolios in crypto
The crypto market has been extremely volatile throughout its short history, and despite the massive inflows we have seen thus far across the Bitcoin ETFs, this volatility is likely to remain for some time. There are a variety of investing styles you can adopt if you wish to enter crypto, and these are strategies that constantly change, forcing market participants to adapt and readjust portfolios to fit the changing times.
Investment strategies in the cryptocurrency market can vary widely, reflecting the diverse objectives, risk tolerances, and time horizons of investors. These strategies range from long-term holding to short-term swing trading, with some investors focusing exclusively on altcoins. Each approach has its nuances and requires different levels of market engagement, analysis, and risk management to be successful. Understanding these various strategies is crucial for anyone looking to navigate the crypto market effectively.
One prevalent strategy among crypto investors is long-term investing, often referred to in the crypto community as "HODLing," a term that originated from a misspelling of "hold." This strategy involves buying and holding cryptocurrencies for extended periods, typically years, with the belief that their value will significantly increase over time. Long-term investors tend to focus on cryptocurrencies with strong fundamentals, including clear use cases, robust technology, and strong community and developer support.
They are less concerned with short-term price fluctuations and more with the long-term potential of their investments. This approach requires patience and a strong conviction in the underlying value of the cryptocurrencies held. Due to the volatility of crypto, it can often be very difficult to form long term conviction in coins outside of Bitcoin or Ethereum, though this is where the strongest returns have come historically. Those that wish to HODL must also structure their holdings differently, as it’s best to keep long term crypto assets stored in a cold wallet versus on an exchange, where it might be tempting to sell or move assets around to strike profits elsewhere.
In contrast to long-term investing, short-term swing trading involves taking advantage of price volatility by buying low and selling high over shorter periods—ranging from a few days to several weeks. Swing traders utilize a variety of technical analysis tools and indicators, such as moving averages, RSI (Relative Strength Index), and Fibonacci retracement levels, to identify potential entry and exit points. This strategy requires a good understanding of market trends and the ability to react quickly to market movements. While it offers the potential for high returns, it also carries a higher risk and requires more time and attention to manage effectively. Swing trading can be quite difficult and typically benefits those who utilize leverage or other investment products, in crypto the most popular being perpetual futures. These futures aren’t always offered everywhere, and it depends on your jurisdiction whether or not you can actually trade these. Leverage can be dangerous in any financial market, but crypto frequently sees the most damage done to leveraged traders due to how prevalent short term market swings can disrupt even the safest of positions. Leverage of course isn’t required, but many swing traders take advantage of the volatility and enter leveraged positions on a frequent basis. Just recently on March 6th, over $1 billion of open interest was wiped from the market as Bitcoin crashed 14% from its newly achieved all-time high, an example of how quickly sentiment adjusts in this market.
Another strategy involves focusing exclusively on altcoins—cryptocurrencies other than Bitcoin. Some investors prefer altcoins because they often offer higher volatility and the potential for larger gains, though they come with higher risk. Altcoin traders typically look for coins with high growth potential, innovative technology, or undervalued market positions. This strategy requires thorough research to distinguish between promising projects and those with less merit. Trading altcoins can be rewarding, but it's important to be aware of their increased susceptibility to market sentiment, regulatory news, and the impact of broader crypto market trends.
More recently, there’s been massive growth in the amount of users trading assets on-chain, that being on a blockchain and utilizing decentralized finance services and self custody wallets. One of the more popular tools for on-chain traders is a site named DEX Screener (decentralized exchange screener) with a massive list of the latest coins and their respective order books. Volume is typically congregated between L1 ecosystems like Ethereum, Solana and Binance Smart Chain, though Solana has been processing billions of dollars in volume daily since Q4 2023.
It’s important to note that DEX Screener traders fall under the bucket of altcoin traders, though many of them typically deal with much smaller coins than the ones you’d see on major crypto sites, with many of these coins not offered on exchanges as well. There are many different strategies you can take, but these all require varying amounts of risk tolerance, time allotted and different knowledge bases - it’s one of the more beautiful aspects of crypto, where anyone can perform well if they put in the time and effort to succeed, with a much more level playing field then traditional financial markets.
Valour, ETPs and Backtesting Analysis
Backtesting investment strategies is a critical process in both traditional financial markets and the burgeoning world of cryptocurrencies. This method involves simulating how an investment strategy would have performed based on historical data, providing insights into the strategy's potential risks and returns. By applying backtesting, investors and portfolio managers can evaluate the effectiveness of various strategies without risking actual capital. This approach is particularly beneficial in the crypto market, where the high volatility and relatively short history add layers of complexity to investment decision-making.
In the traditional financial world, backtesting utilizes vast amounts of historical price data, market conditions, and economic indicators to analyze the performance of stocks, bonds, and other securities over specified periods. This historical simulation helps in identifying patterns, testing theories, and validating the potential success of investment strategies under different market conditions. Strategies that show promising results in diverse scenarios are considered more robust and likely to withstand future market uncertainties.
The application of backtesting in the cryptocurrency market takes on added significance due to the extreme volatility characteristic of this asset class. For example, the crypto market can experience sharp price movements within very short periods—often in response to regulatory news, technological advancements, or changes in investor sentiment—challenges that are less common in the stability-oriented traditional markets.
Backtesting in the context of crypto involves analyzing the price history of cryptocurrencies to evaluate how different investment strategies would have fared. This can include strategies based on momentum, mean reversion, technical analysis indicators, or even strategies that incorporate news sentiment analysis. By backtesting these strategies against the historical price movements of cryptocurrencies, investors can assess metrics such as maximum drawdown, average return, volatility, and the Sharpe ratio, among others. These metrics provide valuable insights into the risk-return profile of investment strategies, helping investors to make more informed decisions.
Different backtesting strategies might take into account varying timeframes, specific asset classes, performance between asset classes and their relation, or something entirely unique. There are numerous ways to take advantage of markets, with computers and software now aiding much of this innovation - there’s a reason why quantitative traders are paid far more than any other profession in the finance industry.
However, backtesting crypto strategies also comes with its challenges. This is a new asset class, one where traditional financial institutions have just set foot in. The limited historical data for many cryptocurrencies, compared to decades-long datasets available for traditional assets or commodities, can make it difficult to test strategies across a wide range of market conditions. Additionally, the crypto market's rapid evolution means that past performance may not always be a reliable indicator of future results. Strategies that performed well in the past may become obsolete as market dynamics change, regulatory landscapes evolve, and new technologies emerge.
Despite these challenges, backtesting remains an indispensable tool in the crypto investor's arsenal. It allows for the refinement of investment strategies by identifying weaknesses and optimizing for better performance. Backtesting can help in devising dynamic strategies that are adaptable to the fast-paced changes characteristic of the crypto market. By continuously updating and backtesting strategies against recent price history and market developments, investors can stay ahead in a market known for its unpredictability.
Just how unpredictable can crypto get? Looking at some of the largest moves from the past thirty days, we see a variety of memecoins that took hold of market mindshare, with the highest performers being WIF, PEPE and SHIB. From February 17th to its peak on March 4th, SHIB ran from $5.5 billion market capitalization to over $26 billion. PEPE saw its value increase 10x from $490 million to $4.4 billion. WIF was the biggest success story, running from $0.35 to over $3.5 in an absolute frenzy, coupled with exchange listings to help boost access to a broader audience.
All of these runs are exemplative of market appetite in a given moment - as Bitcoin crossed its ATH and made a new one, traders looked for exposure in areas outside of the traditional, mainstream coins that might be more attractive to institutional investors. In other times, various sectors of the altcoin market might succeed only to be rotated out of in exchange for the shiny new coins. This was seen in the months leading up to Bitcoin breaking ATH, when sectors like modular infrastructure, gaming and even the NFT market saw rapid increases in their major assets.
Valour represents a pivotal bridge between the rapidly evolving Decentralised Finance ecosystem and traditional capital markets, embodying a future where finance is reshaped by technological innovation. As DeFi continues to grow, offering an array of financial services without traditional intermediaries, Valour stands at the forefront, driving innovation with a keen focus on developing creative, sustainable solutions. This initiative aligns seamlessly with the earlier discussion on the importance of diversification and risk management in investment strategies, particularly within the volatile landscape of cryptocurrency investments.
Established in 2019 as a wholly-owned subsidiary of DeFi Technologies Inc., Valour has quickly distinguished itself by issuing exchange-traded products (ETPs) that provide retail and institutional investors straightforward, secure access to digital assets through traditional banking channels. This approach significantly simplifies the investment process in digital currencies like Bitcoin, making it more accessible to a broader audience and tying back to the strategies discussed for investing in cryptocurrencies.
Valour's foundation is built upon a team comprising financial market veterans, digital asset pioneers, capital markets experts, and product innovators. This diverse expertise underlines their belief in the transformative potential of DeFi and its capacity to revolutionize economies and societies. By blending traditional market wisdom with cutting-edge technology, Valour is uniquely positioned to navigate the complexities of the crypto market, facilitating secure and innovative investment opportunities.
The ETPs offered by Valour underscore a commitment to innovation, transparency, and accessibility in the crypto investment space. Listed on regulated stock exchanges across Europe, including Euronext, the Frankfurt Stock Exchange, and the Nordic Growth Market, these products empower investors to gain exposure to digital assets and the DeFi space with the reassurance of regulatory compliance and the convenience of traditional investment avenues.
Valour's venture into the market with products like Bitcoin Zero, which tracks the price of BTC without charging management fees, exemplifies their approach to cost-effective cryptocurrency investment. This initiative not only makes investment in Bitcoin more accessible but also aligns with strategies for minimizing costs in portfolio management, a critical consideration discussed earlier. Similarly, Valour's offerings of ETPs tracking other major cryptocurrencies like Cardano, Solana, and Avalanche cater to the strategy of diversification within the crypto sector, allowing investors to spread their risk across different digital assets.
Additionally, Valour's research-based early-stage venture arm, which focuses on backing high-potential projects in DeFi and Web 3.0, highlights their proactive role in shaping the future of finance. By investing in pre-seed to Series A ventures, Valour not only accelerates the growth of the DeFi ecosystem but also contributes to its governance, transparency, and security. This forward-thinking approach resonates with the earlier discussion on the importance of adaptability and continuous learning in navigating the crypto market.
In partnering with industry leaders, Valour enhances its offerings' reliability and security, crucial factors for investors navigating the complex and often opaque world of digital assets. Such collaborations ensure that Valour's products remain at the cutting edge of financial innovation, providing trusted, simple, and secure access to the burgeoning field of digital asset investment.
In summary, Valour encapsulates a comprehensive approach to cryptocurrency investment, bridging the gap between traditional finance and the dynamic world of DeFi. Through its innovative ETPs, Valour offers investors a secure, transparent, and accessible pathway into digital assets, aligning with the broader themes of diversification, risk management, and strategic investment in the crypto sector. As the digital asset landscape continues to evolve, Valour's role in shaping the future of finance underscores the importance of innovation, partnership, and regulatory compliance in unlocking the potential of cryptocurrencies for a wider audience.
ETPs and the newly launched ETFs are an excellent way of gaining subtle exposure to a volatile industry. If we take a look at ETF inflows since inception, we see over $50 billion that’s been allocated in just a few months:
We see that institutional investors are allocating very large sums of real money to these newly created products, despite many in the crypto industry warning that Bitcoin is appreciating too fast. They’re price agnostic, allocating 1-3% of their portfolio to an entirely new digital asset class that they weren’t able to access until just recently - of course the inflows are going to appear out of this world. The presence of ETFs makes crypto a very different market, and it’s unclear how much of the downside will be driven by ETF outflows, as well as just how much the inflows have attributed to Bitcoin’s price appreciation.
With all of this in mind, it should be apparent that investing in crypto is not a one size fits all approach. There are numerous categories you can take advantage of within crypto, different trading styles that are more or less accommodative to varying portfolio sizes and now entirely new products designed around digital assets that were not previously tradeable.
In order to properly take advantage of maximizing your gains, investors should set a plan and stick to it, with different strategies for various times in the market. While no one can accurately gauge where we’re at in this current market cycle, it’s important to stay aware of these changes and newer happenings as they come up. Whether it’s with institutional ETFs, Valour’s ETPs or the use of backtesting in your own portfolio strategies, there’s now something for everyone.
Sources (in order of appearance)
https://www.coindesk.com/markets/2021/04/25/crypto-long-short-the-pattern-in-bitcoins-volatility/
https://www.tradingwithrayner.com/how-to-backtest-a-trading-strategy/
https://blockworks.co/bitcoin-etf
Disclaimer: Valour is a sister company of Reflexiviy Research. This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.
An introduction to portfolio construction
Cryptocurrencies have become synonymous with high volatility. Unlike traditional financial markets, where asset prices reflect years of economic data, regulations, and investor behavior, crypto assets often experience sharp price movements based on a mix of technological developments, speculative interest, regulatory news, and market sentiment. For instance, Bitcoin, the first and most well-known cryptocurrency, has seen its price surge from mere cents in 2009 to an all-time high of nearly $65,000 in April 2021, only to be followed by significant drops.
Such volatility is not exclusive to Bitcoin; it is a characteristic shared across the cryptocurrency market, impacting portfolio construction by necessitating strategies that can adapt to rapid price changes. There’s a famous chart in crypto known simply as “the rainbow chart” which displays Bitcoin’s price in the context of halvings and general market sentiment. To illustrate the example of this volatility, look no further than the rapid price appreciations and depreciations present throughout the last decade.
The cryptocurrency market operates in distinct cycles, each comprising phases of accumulation, uptrend, distribution, and downtrend. These cycles can be influenced by a wide range of factors, including technological advancements, regulatory changes, macroeconomic trends, and shifts in investor sentiment. Unlike traditional financial markets, which may follow longer, more predictable cycles, crypto market cycles are relatively short-lived and can be highly unpredictable.
Understanding these cycles is crucial for effective portfolio management in the crypto space, as it enables investors to make informed decisions about when to enter or exit positions. The volatility and unique market cycles of cryptocurrencies pose both challenges and opportunities for portfolio construction. Cryptocurrency markets are known for their rapid price swings.
For instance, Bitcoin, the leading cryptocurrency by market capitalization, has experienced several notable fluctuations. In 2017, it skyrocketed from around $1,000 to just under $20,000, only to fall back to around $3,200 by the end of 2018. Diversification, a cornerstone of traditional portfolio management, takes on a new dimension in crypto markets. Investors may need to consider not only a range of different cryptocurrencies but also how these assets correlate with traditional financial markets and with each other. Additionally, the high-risk nature of crypto investments necessitates a more dynamic approach to portfolio rebalancing, risk assessment, and the use of advanced risk management tools and techniques.
Diversification involves spreading investments across various asset classes (such as equities, bonds, real estate, and commodities) and within asset classes (such as different sectors, industries, and geographies) to reduce exposure to any single asset or market movement. The rationale behind this strategy is that different assets perform differently under various economic conditions; while one asset class may be underperforming, another might be experiencing growth, thereby balancing the portfolio's overall performance. This strategy is crucial in traditional financial markets because it helps in smoothing out the volatility and reducing the portfolio's overall risk. For example, a well-diversified portfolio that includes both stocks and bonds is less likely to experience the full brunt of a stock market downturn, as bonds typically offer lower volatility and may act as a cushion against stock market shocks.
Risk management in traditional financial markets is closely tied to asset allocation—the process of determining the proportion of each asset class in a portfolio based on the investor's risk tolerance, investment horizon, and financial goals. Effective asset allocation can significantly influence a portfolio's risk and return profile. For instance, a portfolio weighted towards equities might offer higher growth potential but comes with increased volatility, making it more suitable for investors with a higher risk tolerance and a longer time horizon. Conversely, a portfolio with a higher allocation to bonds or other fixed-income securities might be better suited for conservative investors seeking stability and regular income.
Hedging is another sophisticated risk management technique used in traditional financial markets. It involves using financial instruments, such as options and futures, to offset potential losses in investments. For example, an investor worried about a potential decline in the stock market might purchase put options on a stock market index. If the market falls, the gains from the put options can help offset losses in the portfolio's equity holdings. While hedging can be a powerful tool to manage risk, it requires expertise to execute correctly and can introduce additional costs.
Risk management and diversification strategies are not set-and-forget. They require continuous monitoring and periodic rebalancing to ensure the portfolio remains aligned with the investor's goals, risk tolerance, and the changing market conditions. Rebalancing involves buying or selling assets in your portfolio to maintain your original asset allocation. This might be necessary after significant market movements that could skew the portfolio's allocation, potentially exposing it to greater risk or altering its expected return profile.
While traditional portfolio theory principles, such as the aforementioned diversification and risk management, remain applicable, they must be adapted to account for the specific characteristics of crypto markets. For example, the extreme volatility of cryptocurrencies means that the standard metrics used to evaluate risk and return in traditional markets may not be directly transferable. Investors and portfolio managers need to develop new frameworks and metrics that can better capture the nuances of crypto asset behavior.
This extreme volatility demands a dynamic investment strategy. Crypto investors often find themselves needing to stay abreast of market trends, news, and technological developments more frequently than in traditional markets. The rapid changes in prices can render a previously balanced crypto portfolio too risk-exposed or too conservative in a matter of days or weeks, necessitating more frequent rebalancing to align with the investor's risk tolerance and investment goals.
The unpredictability of crypto markets means that strategies such as dollar-cost averaging become especially relevant. Dollar-cost averaging involves investing a fixed amount of money at regular intervals, regardless of the asset's price, to reduce the impact of volatility on the overall purchase. This strategy can help mitigate the risk of investing a large amount at an inopportune time when prices are temporarily inflated.
Technological innovation and regulatory changes are two critical factors that influence the crypto market's volatility and cycle structure. Breakthroughs in blockchain technology, the introduction of new cryptocurrencies, and enhancements in crypto market infrastructure can have significant implications for portfolio construction. Similarly, regulatory announcements can lead to sudden market movements, underscoring the importance of staying informed about global regulatory trends and their potential impact on crypto assets.
Managing different types of portfolios in crypto
The crypto market has been extremely volatile throughout its short history, and despite the massive inflows we have seen thus far across the Bitcoin ETFs, this volatility is likely to remain for some time. There are a variety of investing styles you can adopt if you wish to enter crypto, and these are strategies that constantly change, forcing market participants to adapt and readjust portfolios to fit the changing times.
Investment strategies in the cryptocurrency market can vary widely, reflecting the diverse objectives, risk tolerances, and time horizons of investors. These strategies range from long-term holding to short-term swing trading, with some investors focusing exclusively on altcoins. Each approach has its nuances and requires different levels of market engagement, analysis, and risk management to be successful. Understanding these various strategies is crucial for anyone looking to navigate the crypto market effectively.
One prevalent strategy among crypto investors is long-term investing, often referred to in the crypto community as "HODLing," a term that originated from a misspelling of "hold." This strategy involves buying and holding cryptocurrencies for extended periods, typically years, with the belief that their value will significantly increase over time. Long-term investors tend to focus on cryptocurrencies with strong fundamentals, including clear use cases, robust technology, and strong community and developer support.
They are less concerned with short-term price fluctuations and more with the long-term potential of their investments. This approach requires patience and a strong conviction in the underlying value of the cryptocurrencies held. Due to the volatility of crypto, it can often be very difficult to form long term conviction in coins outside of Bitcoin or Ethereum, though this is where the strongest returns have come historically. Those that wish to HODL must also structure their holdings differently, as it’s best to keep long term crypto assets stored in a cold wallet versus on an exchange, where it might be tempting to sell or move assets around to strike profits elsewhere.
In contrast to long-term investing, short-term swing trading involves taking advantage of price volatility by buying low and selling high over shorter periods—ranging from a few days to several weeks. Swing traders utilize a variety of technical analysis tools and indicators, such as moving averages, RSI (Relative Strength Index), and Fibonacci retracement levels, to identify potential entry and exit points. This strategy requires a good understanding of market trends and the ability to react quickly to market movements. While it offers the potential for high returns, it also carries a higher risk and requires more time and attention to manage effectively. Swing trading can be quite difficult and typically benefits those who utilize leverage or other investment products, in crypto the most popular being perpetual futures. These futures aren’t always offered everywhere, and it depends on your jurisdiction whether or not you can actually trade these. Leverage can be dangerous in any financial market, but crypto frequently sees the most damage done to leveraged traders due to how prevalent short term market swings can disrupt even the safest of positions. Leverage of course isn’t required, but many swing traders take advantage of the volatility and enter leveraged positions on a frequent basis. Just recently on March 6th, over $1 billion of open interest was wiped from the market as Bitcoin crashed 14% from its newly achieved all-time high, an example of how quickly sentiment adjusts in this market.
Another strategy involves focusing exclusively on altcoins—cryptocurrencies other than Bitcoin. Some investors prefer altcoins because they often offer higher volatility and the potential for larger gains, though they come with higher risk. Altcoin traders typically look for coins with high growth potential, innovative technology, or undervalued market positions. This strategy requires thorough research to distinguish between promising projects and those with less merit. Trading altcoins can be rewarding, but it's important to be aware of their increased susceptibility to market sentiment, regulatory news, and the impact of broader crypto market trends.
More recently, there’s been massive growth in the amount of users trading assets on-chain, that being on a blockchain and utilizing decentralized finance services and self custody wallets. One of the more popular tools for on-chain traders is a site named DEX Screener (decentralized exchange screener) with a massive list of the latest coins and their respective order books. Volume is typically congregated between L1 ecosystems like Ethereum, Solana and Binance Smart Chain, though Solana has been processing billions of dollars in volume daily since Q4 2023.
It’s important to note that DEX Screener traders fall under the bucket of altcoin traders, though many of them typically deal with much smaller coins than the ones you’d see on major crypto sites, with many of these coins not offered on exchanges as well. There are many different strategies you can take, but these all require varying amounts of risk tolerance, time allotted and different knowledge bases - it’s one of the more beautiful aspects of crypto, where anyone can perform well if they put in the time and effort to succeed, with a much more level playing field then traditional financial markets.
Valour, ETPs and Backtesting Analysis
Backtesting investment strategies is a critical process in both traditional financial markets and the burgeoning world of cryptocurrencies. This method involves simulating how an investment strategy would have performed based on historical data, providing insights into the strategy's potential risks and returns. By applying backtesting, investors and portfolio managers can evaluate the effectiveness of various strategies without risking actual capital. This approach is particularly beneficial in the crypto market, where the high volatility and relatively short history add layers of complexity to investment decision-making.
In the traditional financial world, backtesting utilizes vast amounts of historical price data, market conditions, and economic indicators to analyze the performance of stocks, bonds, and other securities over specified periods. This historical simulation helps in identifying patterns, testing theories, and validating the potential success of investment strategies under different market conditions. Strategies that show promising results in diverse scenarios are considered more robust and likely to withstand future market uncertainties.
The application of backtesting in the cryptocurrency market takes on added significance due to the extreme volatility characteristic of this asset class. For example, the crypto market can experience sharp price movements within very short periods—often in response to regulatory news, technological advancements, or changes in investor sentiment—challenges that are less common in the stability-oriented traditional markets.
Backtesting in the context of crypto involves analyzing the price history of cryptocurrencies to evaluate how different investment strategies would have fared. This can include strategies based on momentum, mean reversion, technical analysis indicators, or even strategies that incorporate news sentiment analysis. By backtesting these strategies against the historical price movements of cryptocurrencies, investors can assess metrics such as maximum drawdown, average return, volatility, and the Sharpe ratio, among others. These metrics provide valuable insights into the risk-return profile of investment strategies, helping investors to make more informed decisions.
Different backtesting strategies might take into account varying timeframes, specific asset classes, performance between asset classes and their relation, or something entirely unique. There are numerous ways to take advantage of markets, with computers and software now aiding much of this innovation - there’s a reason why quantitative traders are paid far more than any other profession in the finance industry.
However, backtesting crypto strategies also comes with its challenges. This is a new asset class, one where traditional financial institutions have just set foot in. The limited historical data for many cryptocurrencies, compared to decades-long datasets available for traditional assets or commodities, can make it difficult to test strategies across a wide range of market conditions. Additionally, the crypto market's rapid evolution means that past performance may not always be a reliable indicator of future results. Strategies that performed well in the past may become obsolete as market dynamics change, regulatory landscapes evolve, and new technologies emerge.
Despite these challenges, backtesting remains an indispensable tool in the crypto investor's arsenal. It allows for the refinement of investment strategies by identifying weaknesses and optimizing for better performance. Backtesting can help in devising dynamic strategies that are adaptable to the fast-paced changes characteristic of the crypto market. By continuously updating and backtesting strategies against recent price history and market developments, investors can stay ahead in a market known for its unpredictability.
Just how unpredictable can crypto get? Looking at some of the largest moves from the past thirty days, we see a variety of memecoins that took hold of market mindshare, with the highest performers being WIF, PEPE and SHIB. From February 17th to its peak on March 4th, SHIB ran from $5.5 billion market capitalization to over $26 billion. PEPE saw its value increase 10x from $490 million to $4.4 billion. WIF was the biggest success story, running from $0.35 to over $3.5 in an absolute frenzy, coupled with exchange listings to help boost access to a broader audience.
All of these runs are exemplative of market appetite in a given moment - as Bitcoin crossed its ATH and made a new one, traders looked for exposure in areas outside of the traditional, mainstream coins that might be more attractive to institutional investors. In other times, various sectors of the altcoin market might succeed only to be rotated out of in exchange for the shiny new coins. This was seen in the months leading up to Bitcoin breaking ATH, when sectors like modular infrastructure, gaming and even the NFT market saw rapid increases in their major assets.
Valour represents a pivotal bridge between the rapidly evolving Decentralised Finance ecosystem and traditional capital markets, embodying a future where finance is reshaped by technological innovation. As DeFi continues to grow, offering an array of financial services without traditional intermediaries, Valour stands at the forefront, driving innovation with a keen focus on developing creative, sustainable solutions. This initiative aligns seamlessly with the earlier discussion on the importance of diversification and risk management in investment strategies, particularly within the volatile landscape of cryptocurrency investments.
Established in 2019 as a wholly-owned subsidiary of DeFi Technologies Inc., Valour has quickly distinguished itself by issuing exchange-traded products (ETPs) that provide retail and institutional investors straightforward, secure access to digital assets through traditional banking channels. This approach significantly simplifies the investment process in digital currencies like Bitcoin, making it more accessible to a broader audience and tying back to the strategies discussed for investing in cryptocurrencies.
Valour's foundation is built upon a team comprising financial market veterans, digital asset pioneers, capital markets experts, and product innovators. This diverse expertise underlines their belief in the transformative potential of DeFi and its capacity to revolutionize economies and societies. By blending traditional market wisdom with cutting-edge technology, Valour is uniquely positioned to navigate the complexities of the crypto market, facilitating secure and innovative investment opportunities.
The ETPs offered by Valour underscore a commitment to innovation, transparency, and accessibility in the crypto investment space. Listed on regulated stock exchanges across Europe, including Euronext, the Frankfurt Stock Exchange, and the Nordic Growth Market, these products empower investors to gain exposure to digital assets and the DeFi space with the reassurance of regulatory compliance and the convenience of traditional investment avenues.
Valour's venture into the market with products like Bitcoin Zero, which tracks the price of BTC without charging management fees, exemplifies their approach to cost-effective cryptocurrency investment. This initiative not only makes investment in Bitcoin more accessible but also aligns with strategies for minimizing costs in portfolio management, a critical consideration discussed earlier. Similarly, Valour's offerings of ETPs tracking other major cryptocurrencies like Cardano, Solana, and Avalanche cater to the strategy of diversification within the crypto sector, allowing investors to spread their risk across different digital assets.
Additionally, Valour's research-based early-stage venture arm, which focuses on backing high-potential projects in DeFi and Web 3.0, highlights their proactive role in shaping the future of finance. By investing in pre-seed to Series A ventures, Valour not only accelerates the growth of the DeFi ecosystem but also contributes to its governance, transparency, and security. This forward-thinking approach resonates with the earlier discussion on the importance of adaptability and continuous learning in navigating the crypto market.
In partnering with industry leaders, Valour enhances its offerings' reliability and security, crucial factors for investors navigating the complex and often opaque world of digital assets. Such collaborations ensure that Valour's products remain at the cutting edge of financial innovation, providing trusted, simple, and secure access to the burgeoning field of digital asset investment.
In summary, Valour encapsulates a comprehensive approach to cryptocurrency investment, bridging the gap between traditional finance and the dynamic world of DeFi. Through its innovative ETPs, Valour offers investors a secure, transparent, and accessible pathway into digital assets, aligning with the broader themes of diversification, risk management, and strategic investment in the crypto sector. As the digital asset landscape continues to evolve, Valour's role in shaping the future of finance underscores the importance of innovation, partnership, and regulatory compliance in unlocking the potential of cryptocurrencies for a wider audience.
ETPs and the newly launched ETFs are an excellent way of gaining subtle exposure to a volatile industry. If we take a look at ETF inflows since inception, we see over $50 billion that’s been allocated in just a few months:
We see that institutional investors are allocating very large sums of real money to these newly created products, despite many in the crypto industry warning that Bitcoin is appreciating too fast. They’re price agnostic, allocating 1-3% of their portfolio to an entirely new digital asset class that they weren’t able to access until just recently - of course the inflows are going to appear out of this world. The presence of ETFs makes crypto a very different market, and it’s unclear how much of the downside will be driven by ETF outflows, as well as just how much the inflows have attributed to Bitcoin’s price appreciation.
With all of this in mind, it should be apparent that investing in crypto is not a one size fits all approach. There are numerous categories you can take advantage of within crypto, different trading styles that are more or less accommodative to varying portfolio sizes and now entirely new products designed around digital assets that were not previously tradeable.
In order to properly take advantage of maximizing your gains, investors should set a plan and stick to it, with different strategies for various times in the market. While no one can accurately gauge where we’re at in this current market cycle, it’s important to stay aware of these changes and newer happenings as they come up. Whether it’s with institutional ETFs, Valour’s ETPs or the use of backtesting in your own portfolio strategies, there’s now something for everyone.
Sources (in order of appearance)
https://www.coindesk.com/markets/2021/04/25/crypto-long-short-the-pattern-in-bitcoins-volatility/
https://www.tradingwithrayner.com/how-to-backtest-a-trading-strategy/
https://blockworks.co/bitcoin-etf
Disclaimer: Valour is a sister company of Reflexiviy Research. This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.
An introduction to portfolio construction
Cryptocurrencies have become synonymous with high volatility. Unlike traditional financial markets, where asset prices reflect years of economic data, regulations, and investor behavior, crypto assets often experience sharp price movements based on a mix of technological developments, speculative interest, regulatory news, and market sentiment. For instance, Bitcoin, the first and most well-known cryptocurrency, has seen its price surge from mere cents in 2009 to an all-time high of nearly $65,000 in April 2021, only to be followed by significant drops.
Such volatility is not exclusive to Bitcoin; it is a characteristic shared across the cryptocurrency market, impacting portfolio construction by necessitating strategies that can adapt to rapid price changes. There’s a famous chart in crypto known simply as “the rainbow chart” which displays Bitcoin’s price in the context of halvings and general market sentiment. To illustrate the example of this volatility, look no further than the rapid price appreciations and depreciations present throughout the last decade.
The cryptocurrency market operates in distinct cycles, each comprising phases of accumulation, uptrend, distribution, and downtrend. These cycles can be influenced by a wide range of factors, including technological advancements, regulatory changes, macroeconomic trends, and shifts in investor sentiment. Unlike traditional financial markets, which may follow longer, more predictable cycles, crypto market cycles are relatively short-lived and can be highly unpredictable.
Understanding these cycles is crucial for effective portfolio management in the crypto space, as it enables investors to make informed decisions about when to enter or exit positions. The volatility and unique market cycles of cryptocurrencies pose both challenges and opportunities for portfolio construction. Cryptocurrency markets are known for their rapid price swings.
For instance, Bitcoin, the leading cryptocurrency by market capitalization, has experienced several notable fluctuations. In 2017, it skyrocketed from around $1,000 to just under $20,000, only to fall back to around $3,200 by the end of 2018. Diversification, a cornerstone of traditional portfolio management, takes on a new dimension in crypto markets. Investors may need to consider not only a range of different cryptocurrencies but also how these assets correlate with traditional financial markets and with each other. Additionally, the high-risk nature of crypto investments necessitates a more dynamic approach to portfolio rebalancing, risk assessment, and the use of advanced risk management tools and techniques.
Diversification involves spreading investments across various asset classes (such as equities, bonds, real estate, and commodities) and within asset classes (such as different sectors, industries, and geographies) to reduce exposure to any single asset or market movement. The rationale behind this strategy is that different assets perform differently under various economic conditions; while one asset class may be underperforming, another might be experiencing growth, thereby balancing the portfolio's overall performance. This strategy is crucial in traditional financial markets because it helps in smoothing out the volatility and reducing the portfolio's overall risk. For example, a well-diversified portfolio that includes both stocks and bonds is less likely to experience the full brunt of a stock market downturn, as bonds typically offer lower volatility and may act as a cushion against stock market shocks.
Risk management in traditional financial markets is closely tied to asset allocation—the process of determining the proportion of each asset class in a portfolio based on the investor's risk tolerance, investment horizon, and financial goals. Effective asset allocation can significantly influence a portfolio's risk and return profile. For instance, a portfolio weighted towards equities might offer higher growth potential but comes with increased volatility, making it more suitable for investors with a higher risk tolerance and a longer time horizon. Conversely, a portfolio with a higher allocation to bonds or other fixed-income securities might be better suited for conservative investors seeking stability and regular income.
Hedging is another sophisticated risk management technique used in traditional financial markets. It involves using financial instruments, such as options and futures, to offset potential losses in investments. For example, an investor worried about a potential decline in the stock market might purchase put options on a stock market index. If the market falls, the gains from the put options can help offset losses in the portfolio's equity holdings. While hedging can be a powerful tool to manage risk, it requires expertise to execute correctly and can introduce additional costs.
Risk management and diversification strategies are not set-and-forget. They require continuous monitoring and periodic rebalancing to ensure the portfolio remains aligned with the investor's goals, risk tolerance, and the changing market conditions. Rebalancing involves buying or selling assets in your portfolio to maintain your original asset allocation. This might be necessary after significant market movements that could skew the portfolio's allocation, potentially exposing it to greater risk or altering its expected return profile.
While traditional portfolio theory principles, such as the aforementioned diversification and risk management, remain applicable, they must be adapted to account for the specific characteristics of crypto markets. For example, the extreme volatility of cryptocurrencies means that the standard metrics used to evaluate risk and return in traditional markets may not be directly transferable. Investors and portfolio managers need to develop new frameworks and metrics that can better capture the nuances of crypto asset behavior.
This extreme volatility demands a dynamic investment strategy. Crypto investors often find themselves needing to stay abreast of market trends, news, and technological developments more frequently than in traditional markets. The rapid changes in prices can render a previously balanced crypto portfolio too risk-exposed or too conservative in a matter of days or weeks, necessitating more frequent rebalancing to align with the investor's risk tolerance and investment goals.
The unpredictability of crypto markets means that strategies such as dollar-cost averaging become especially relevant. Dollar-cost averaging involves investing a fixed amount of money at regular intervals, regardless of the asset's price, to reduce the impact of volatility on the overall purchase. This strategy can help mitigate the risk of investing a large amount at an inopportune time when prices are temporarily inflated.
Technological innovation and regulatory changes are two critical factors that influence the crypto market's volatility and cycle structure. Breakthroughs in blockchain technology, the introduction of new cryptocurrencies, and enhancements in crypto market infrastructure can have significant implications for portfolio construction. Similarly, regulatory announcements can lead to sudden market movements, underscoring the importance of staying informed about global regulatory trends and their potential impact on crypto assets.
Managing different types of portfolios in crypto
The crypto market has been extremely volatile throughout its short history, and despite the massive inflows we have seen thus far across the Bitcoin ETFs, this volatility is likely to remain for some time. There are a variety of investing styles you can adopt if you wish to enter crypto, and these are strategies that constantly change, forcing market participants to adapt and readjust portfolios to fit the changing times.
Investment strategies in the cryptocurrency market can vary widely, reflecting the diverse objectives, risk tolerances, and time horizons of investors. These strategies range from long-term holding to short-term swing trading, with some investors focusing exclusively on altcoins. Each approach has its nuances and requires different levels of market engagement, analysis, and risk management to be successful. Understanding these various strategies is crucial for anyone looking to navigate the crypto market effectively.
One prevalent strategy among crypto investors is long-term investing, often referred to in the crypto community as "HODLing," a term that originated from a misspelling of "hold." This strategy involves buying and holding cryptocurrencies for extended periods, typically years, with the belief that their value will significantly increase over time. Long-term investors tend to focus on cryptocurrencies with strong fundamentals, including clear use cases, robust technology, and strong community and developer support.
They are less concerned with short-term price fluctuations and more with the long-term potential of their investments. This approach requires patience and a strong conviction in the underlying value of the cryptocurrencies held. Due to the volatility of crypto, it can often be very difficult to form long term conviction in coins outside of Bitcoin or Ethereum, though this is where the strongest returns have come historically. Those that wish to HODL must also structure their holdings differently, as it’s best to keep long term crypto assets stored in a cold wallet versus on an exchange, where it might be tempting to sell or move assets around to strike profits elsewhere.
In contrast to long-term investing, short-term swing trading involves taking advantage of price volatility by buying low and selling high over shorter periods—ranging from a few days to several weeks. Swing traders utilize a variety of technical analysis tools and indicators, such as moving averages, RSI (Relative Strength Index), and Fibonacci retracement levels, to identify potential entry and exit points. This strategy requires a good understanding of market trends and the ability to react quickly to market movements. While it offers the potential for high returns, it also carries a higher risk and requires more time and attention to manage effectively. Swing trading can be quite difficult and typically benefits those who utilize leverage or other investment products, in crypto the most popular being perpetual futures. These futures aren’t always offered everywhere, and it depends on your jurisdiction whether or not you can actually trade these. Leverage can be dangerous in any financial market, but crypto frequently sees the most damage done to leveraged traders due to how prevalent short term market swings can disrupt even the safest of positions. Leverage of course isn’t required, but many swing traders take advantage of the volatility and enter leveraged positions on a frequent basis. Just recently on March 6th, over $1 billion of open interest was wiped from the market as Bitcoin crashed 14% from its newly achieved all-time high, an example of how quickly sentiment adjusts in this market.
Another strategy involves focusing exclusively on altcoins—cryptocurrencies other than Bitcoin. Some investors prefer altcoins because they often offer higher volatility and the potential for larger gains, though they come with higher risk. Altcoin traders typically look for coins with high growth potential, innovative technology, or undervalued market positions. This strategy requires thorough research to distinguish between promising projects and those with less merit. Trading altcoins can be rewarding, but it's important to be aware of their increased susceptibility to market sentiment, regulatory news, and the impact of broader crypto market trends.
More recently, there’s been massive growth in the amount of users trading assets on-chain, that being on a blockchain and utilizing decentralized finance services and self custody wallets. One of the more popular tools for on-chain traders is a site named DEX Screener (decentralized exchange screener) with a massive list of the latest coins and their respective order books. Volume is typically congregated between L1 ecosystems like Ethereum, Solana and Binance Smart Chain, though Solana has been processing billions of dollars in volume daily since Q4 2023.
It’s important to note that DEX Screener traders fall under the bucket of altcoin traders, though many of them typically deal with much smaller coins than the ones you’d see on major crypto sites, with many of these coins not offered on exchanges as well. There are many different strategies you can take, but these all require varying amounts of risk tolerance, time allotted and different knowledge bases - it’s one of the more beautiful aspects of crypto, where anyone can perform well if they put in the time and effort to succeed, with a much more level playing field then traditional financial markets.
Valour, ETPs and Backtesting Analysis
Backtesting investment strategies is a critical process in both traditional financial markets and the burgeoning world of cryptocurrencies. This method involves simulating how an investment strategy would have performed based on historical data, providing insights into the strategy's potential risks and returns. By applying backtesting, investors and portfolio managers can evaluate the effectiveness of various strategies without risking actual capital. This approach is particularly beneficial in the crypto market, where the high volatility and relatively short history add layers of complexity to investment decision-making.
In the traditional financial world, backtesting utilizes vast amounts of historical price data, market conditions, and economic indicators to analyze the performance of stocks, bonds, and other securities over specified periods. This historical simulation helps in identifying patterns, testing theories, and validating the potential success of investment strategies under different market conditions. Strategies that show promising results in diverse scenarios are considered more robust and likely to withstand future market uncertainties.
The application of backtesting in the cryptocurrency market takes on added significance due to the extreme volatility characteristic of this asset class. For example, the crypto market can experience sharp price movements within very short periods—often in response to regulatory news, technological advancements, or changes in investor sentiment—challenges that are less common in the stability-oriented traditional markets.
Backtesting in the context of crypto involves analyzing the price history of cryptocurrencies to evaluate how different investment strategies would have fared. This can include strategies based on momentum, mean reversion, technical analysis indicators, or even strategies that incorporate news sentiment analysis. By backtesting these strategies against the historical price movements of cryptocurrencies, investors can assess metrics such as maximum drawdown, average return, volatility, and the Sharpe ratio, among others. These metrics provide valuable insights into the risk-return profile of investment strategies, helping investors to make more informed decisions.
Different backtesting strategies might take into account varying timeframes, specific asset classes, performance between asset classes and their relation, or something entirely unique. There are numerous ways to take advantage of markets, with computers and software now aiding much of this innovation - there’s a reason why quantitative traders are paid far more than any other profession in the finance industry.
However, backtesting crypto strategies also comes with its challenges. This is a new asset class, one where traditional financial institutions have just set foot in. The limited historical data for many cryptocurrencies, compared to decades-long datasets available for traditional assets or commodities, can make it difficult to test strategies across a wide range of market conditions. Additionally, the crypto market's rapid evolution means that past performance may not always be a reliable indicator of future results. Strategies that performed well in the past may become obsolete as market dynamics change, regulatory landscapes evolve, and new technologies emerge.
Despite these challenges, backtesting remains an indispensable tool in the crypto investor's arsenal. It allows for the refinement of investment strategies by identifying weaknesses and optimizing for better performance. Backtesting can help in devising dynamic strategies that are adaptable to the fast-paced changes characteristic of the crypto market. By continuously updating and backtesting strategies against recent price history and market developments, investors can stay ahead in a market known for its unpredictability.
Just how unpredictable can crypto get? Looking at some of the largest moves from the past thirty days, we see a variety of memecoins that took hold of market mindshare, with the highest performers being WIF, PEPE and SHIB. From February 17th to its peak on March 4th, SHIB ran from $5.5 billion market capitalization to over $26 billion. PEPE saw its value increase 10x from $490 million to $4.4 billion. WIF was the biggest success story, running from $0.35 to over $3.5 in an absolute frenzy, coupled with exchange listings to help boost access to a broader audience.
All of these runs are exemplative of market appetite in a given moment - as Bitcoin crossed its ATH and made a new one, traders looked for exposure in areas outside of the traditional, mainstream coins that might be more attractive to institutional investors. In other times, various sectors of the altcoin market might succeed only to be rotated out of in exchange for the shiny new coins. This was seen in the months leading up to Bitcoin breaking ATH, when sectors like modular infrastructure, gaming and even the NFT market saw rapid increases in their major assets.
Valour represents a pivotal bridge between the rapidly evolving Decentralised Finance ecosystem and traditional capital markets, embodying a future where finance is reshaped by technological innovation. As DeFi continues to grow, offering an array of financial services without traditional intermediaries, Valour stands at the forefront, driving innovation with a keen focus on developing creative, sustainable solutions. This initiative aligns seamlessly with the earlier discussion on the importance of diversification and risk management in investment strategies, particularly within the volatile landscape of cryptocurrency investments.
Established in 2019 as a wholly-owned subsidiary of DeFi Technologies Inc., Valour has quickly distinguished itself by issuing exchange-traded products (ETPs) that provide retail and institutional investors straightforward, secure access to digital assets through traditional banking channels. This approach significantly simplifies the investment process in digital currencies like Bitcoin, making it more accessible to a broader audience and tying back to the strategies discussed for investing in cryptocurrencies.
Valour's foundation is built upon a team comprising financial market veterans, digital asset pioneers, capital markets experts, and product innovators. This diverse expertise underlines their belief in the transformative potential of DeFi and its capacity to revolutionize economies and societies. By blending traditional market wisdom with cutting-edge technology, Valour is uniquely positioned to navigate the complexities of the crypto market, facilitating secure and innovative investment opportunities.
The ETPs offered by Valour underscore a commitment to innovation, transparency, and accessibility in the crypto investment space. Listed on regulated stock exchanges across Europe, including Euronext, the Frankfurt Stock Exchange, and the Nordic Growth Market, these products empower investors to gain exposure to digital assets and the DeFi space with the reassurance of regulatory compliance and the convenience of traditional investment avenues.
Valour's venture into the market with products like Bitcoin Zero, which tracks the price of BTC without charging management fees, exemplifies their approach to cost-effective cryptocurrency investment. This initiative not only makes investment in Bitcoin more accessible but also aligns with strategies for minimizing costs in portfolio management, a critical consideration discussed earlier. Similarly, Valour's offerings of ETPs tracking other major cryptocurrencies like Cardano, Solana, and Avalanche cater to the strategy of diversification within the crypto sector, allowing investors to spread their risk across different digital assets.
Additionally, Valour's research-based early-stage venture arm, which focuses on backing high-potential projects in DeFi and Web 3.0, highlights their proactive role in shaping the future of finance. By investing in pre-seed to Series A ventures, Valour not only accelerates the growth of the DeFi ecosystem but also contributes to its governance, transparency, and security. This forward-thinking approach resonates with the earlier discussion on the importance of adaptability and continuous learning in navigating the crypto market.
In partnering with industry leaders, Valour enhances its offerings' reliability and security, crucial factors for investors navigating the complex and often opaque world of digital assets. Such collaborations ensure that Valour's products remain at the cutting edge of financial innovation, providing trusted, simple, and secure access to the burgeoning field of digital asset investment.
In summary, Valour encapsulates a comprehensive approach to cryptocurrency investment, bridging the gap between traditional finance and the dynamic world of DeFi. Through its innovative ETPs, Valour offers investors a secure, transparent, and accessible pathway into digital assets, aligning with the broader themes of diversification, risk management, and strategic investment in the crypto sector. As the digital asset landscape continues to evolve, Valour's role in shaping the future of finance underscores the importance of innovation, partnership, and regulatory compliance in unlocking the potential of cryptocurrencies for a wider audience.
ETPs and the newly launched ETFs are an excellent way of gaining subtle exposure to a volatile industry. If we take a look at ETF inflows since inception, we see over $50 billion that’s been allocated in just a few months:
We see that institutional investors are allocating very large sums of real money to these newly created products, despite many in the crypto industry warning that Bitcoin is appreciating too fast. They’re price agnostic, allocating 1-3% of their portfolio to an entirely new digital asset class that they weren’t able to access until just recently - of course the inflows are going to appear out of this world. The presence of ETFs makes crypto a very different market, and it’s unclear how much of the downside will be driven by ETF outflows, as well as just how much the inflows have attributed to Bitcoin’s price appreciation.
With all of this in mind, it should be apparent that investing in crypto is not a one size fits all approach. There are numerous categories you can take advantage of within crypto, different trading styles that are more or less accommodative to varying portfolio sizes and now entirely new products designed around digital assets that were not previously tradeable.
In order to properly take advantage of maximizing your gains, investors should set a plan and stick to it, with different strategies for various times in the market. While no one can accurately gauge where we’re at in this current market cycle, it’s important to stay aware of these changes and newer happenings as they come up. Whether it’s with institutional ETFs, Valour’s ETPs or the use of backtesting in your own portfolio strategies, there’s now something for everyone.
Sources (in order of appearance)
https://www.coindesk.com/markets/2021/04/25/crypto-long-short-the-pattern-in-bitcoins-volatility/
https://www.tradingwithrayner.com/how-to-backtest-a-trading-strategy/
https://blockworks.co/bitcoin-etf
Disclaimer: Valour is a sister company of Reflexiviy Research. This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.
