Cryptocurrency Trading Strategy: Modern Portfolio Theory
“I believe in something called ‘portfolio science,’” Lou Kerner – a founding partner at venture capital firm CryptoOracle – tells Cryptocurrency News, “ pronounces that you assign a fraction of your assets to crypto, and then buy a basket of market-based assets, on an unvarying basis and without a concern for the prices. Over the long run, that’s how you increase returns.” Kerner is referring here to modern portfolio theory (MPT), which originated from a 1952 essay by American economist Harry Markowitz, A theory that works well as a cryptocurrency trading strategy.
In its meekest form, MPT contains capitalizing in a range of assets, whose price activities are uncorrelated. Because of their uncorrelated-ness they incline not to fall and upsurge together, thereby, lowering the investor’s contact to separate specific asset risk and rescuing him or her from overall losses.
And as Kerner suggests, if the investor selects their banquet of assets (including cryptocurrencies) prudently, they may enjoy stronger returns over the long term. For example, a 2017 study conducted by researchers at Bocconi University in Italy suggests that MPT is the ideal strategy for crypto-trading, at least when associated to a ‘Bitcoin-only’ strategy and one which weights in on numerous different coins equally (i.e. that embraces an equal amount/value of each coin).
However, the key point to make here is that the use of MPT cannot usually be limited solely to the crypto-market. That’s because cryptocurrencies are too highly associated or interrelated with one another at the moment. When one slips so do the vast majority of the others, for example, if bitcoin prices suddenly drop in the market then the market value of Ethereum and the other coins decrease with it, thereby exposing investors to larger risks.
As an investor it is absolutely necessary to keep oneself well-educated on at least one cryptocurrency trading strategy as it may help increase significantly the assets invested in.
In its meekest form, MPT contains capitalizing in a range of assets, whose price activities are uncorrelated. Because of their uncorrelated-ness they incline not to fall and upsurge together, thereby, lowering the investor’s contact to separate specific asset risk and rescuing him or her from overall losses.
And as Kerner suggests, if the investor selects their banquet of assets (including cryptocurrencies) prudently, they may enjoy stronger returns over the long term. For example, a 2017 study conducted by researchers at Bocconi University in Italy suggests that MPT is the ideal strategy for crypto-trading, at least when associated to a ‘Bitcoin-only’ strategy and one which weights in on numerous different coins equally (i.e. that embraces an equal amount/value of each coin).
However, the key point to make here is that the use of MPT cannot usually be limited solely to the crypto-market. That’s because cryptocurrencies are too highly associated or interrelated with one another at the moment. When one slips so do the vast majority of the others, for example, if bitcoin prices suddenly drop in the market then the market value of Ethereum and the other coins decrease with it, thereby exposing investors to larger risks.
As an investor it is absolutely necessary to keep oneself well-educated on at least one cryptocurrency trading strategy as it may help increase significantly the assets invested in.
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