21Shares Releases Sixth State of Crypto Report

Crypto Assets Portfolio Allocation

21Shares Releases Sixth State of Crypto Report: Crypto Assets Portfolio Allocation

The State of Crypto Report provides an in-depth look at the crypto industry over the past few months, as well as insights into portfolio allocation

NEW YORK, June 1, 2022 – 21Shares AG ("21Shares"), the world's largest issuer of cryptocurrency exchange traded products (ETPs), today released its sixth issue of its State of Crypto Report. The report overviews industry happenings over the past few months and provides data on optimizing portfolio allocation for various risk profiles and portfolio strategies based on crypto-native indicators, sourced from the blockchain.

The findings underscore that adding crypto assets, including bitcoin or the top five crypto assets based on market cap, to a portfolio can drastically improve risk-adjusted returns. Additionally, including 5% large-cap crypto assets provides a better risk-return tradeoff than a bitcoin-only portfolio, as measured by the Sharpe ratio. When combining all return and risk measures across different rebalance frequencies with the trading cost estimation from annualized turnover ratio, rebalancing on a quarterly basis provides the best trade-off for investors.

Other key findings include:

• Crypto assets are risk-on assets: Over the last eight years, bitcoin has maintained a relatively low correlation with the S&P 500 (~0.15). In March 2020, during the COVID-19 induced market crash, the correlation of bitcoin and the S&P 500 was 0.53. In this risk-off environment, like any other asset except gold, bitcoin reached all-time high levels of correlation with the S&P 500 (0.69). In the short term, especially during distressed times, correlation levels across asset classes increase but longer term, crypto is uncorrelated and continues to be one of the best performing asset classes of the past decade.
• Rebalancing mitigates market drawdowns: Rebalancing is critical for portfolio construction to smooth out swings across major asset classes — especially for crypto assets including bitcoin and Ethereum or a basket — and harvesting the long-term premium leads to diversification benefits. Quarterly rebalancing provides the best outcome.
• Performance does not always correlate with timing: While many investors argue that timing matters in crypto investing, the data says otherwise: regardless of when bitcoin was added to a portfolio, 90% of the time, the strategy outperformed the benchmark in the first year, and 100% of the time, the strategy exceeded it in the next three years.