Almost exactly three months ago I wrote a post looking at the outcomes of investing in the top 10 cryptos during a bull market. In that post I picked 2017-12-01 as the start date of the study, the middle of the 2017/2018 bull market in crypto.
The crypto market has now been retreating from its heights for a couple of months now and in this post I will look at the effects of investing in crypto during a bear market.
I picked the start date of this study to be 2018-02-01 - the middle of the retracement of the 2017/2018 crypto bull market. As in the previous post, I used the list of top 10 crypto currencies as available on CoinMarketCap reflecting 2018-02-01.
- Bitcoin (BTC)
- Ethereum (ETH)
- Ripple (XRP)
- Bitcoin Cash (BCH)
- Cardano (ADA)
- Stellar (XLM)
- Neo (NEO)
- Litecoin (LTC)
- Eos (EOS)
- NEM (XEM)
All the following studies examine buying and holding crypto with 1:1, 1:2 and 1:5 leverage.
Bitcoin
Ethereum
Ripple
Bitcoin Cash
Cardano
Stellar
Neo
Litecoin
Eos
NEM
Results
| Pair | Leverage | Return | Maximum Drawdown | Longest drawdown period (days) |
|---|---|---|---|---|
| BTC-USD | 1:1.0 | 367% | -72% | 482 |
| BTC-USD | 1:2.0 | 149% | -95% | 1025 |
| BTC-USD | 1:5.0 | 0% | -101% | 1232 |
| - | ||||
| ETH-USD | 1:1.0 | 199% | -92% | 1064 |
| ETH-USD | 1:2.0 | 7% | -100% | 1232 |
| ETH-USD | 1:5.0 | 0% | -100% | 1232 |
| - | ||||
| XRP-USD | 1:1.0 | 73% | -88% | 1144 |
| XRP-USD | 1:2.0 | 0% | -100% | 1216 |
| XRP-USD | 1:5.0 | 0% | -100% | 1232 |
| - | ||||
| BCH-USD | 1:1.0 | 41% | -96% | 1138 |
| BCH-USD | 1:2.0 | 0% | -100% | 1217 |
| BCH-USD | 1:5.0 | 0% | -173% | 1232 |
| - | ||||
| ADA-USD | 1:1.0 | 313% | -95% | 1092 |
| ADA-USD | 1:2.0 | 8% | -100% | 1230 |
| ADA-USD | 1:5.0 | 0% | -100% | 1230 |
| - | ||||
| XLM-USD | 1:1.0 | 60% | -93% | 1087 |
| XLM-USD | 1:2.0 | 0% | -100% | 1232 |
| XLM-USD | 1:5.0 | 0% | -100% | 1232 |
| - | ||||
| NEO-USD | 1:1.0 | 33% | -96% | 1206 |
| NEO-USD | 1:2.0 | 0% | -100% | 1232 |
| NEO-USD | 1:5.0 | 0% | -131% | 1232 |
| - | ||||
| LTC-USD | 1:1.0 | 102% | -90% | 1089 |
| LTC-USD | 1:2.0 | 2% | -100% | 1213 |
| LTC-USD | 1:5.0 | 0% | -100% | 1217 |
| - | ||||
| EOS-USD | 1:1.0 | 41% | -92% | 1145 |
| EOS-USD | 1:2.0 | 0% | -100% | 1145 |
| EOS-USD | 1:5.0 | 0% | -100% | 1232 |
| - | ||||
| XEM-USD | 1:1.0 | 22% | -95% | 1111 |
| XEM-USD | 1:2.0 | 0% | -100% | 1230 |
| XEM-USD | 1:5.0 | 0% | -100% | 1232 |
Conclusion
Unsurprisingly, investing in a leveraged crypto portfolio during a downturn leads to extreme losses. With the exception of Bitcoin, all cryptos would have lost the whole stake.
Using no leverage, the picture looks slightly better. An equal weighted portfolio of all top 10 coins would have returned 25% with drawdowns of over 90%. In the scheme of things, that represents a terrible risk adjusted return.
