Should I invest in crypto trading bots or should I buy crypto coins myself?

Why should I invest in crypto trading bots? Why not open an account on a crypto exchange and trade in crypto currency myself? Okay, maybe trading by myself is not the smartest option. It takes a fair amount of time, knowledge, skill and steel nerves to trade successfully. Even more so when trading cryptocurrency.

But what about buying a selection of larger cryptocurrency coins, and just hold them for a longer period of time? The cryptocurrency market is in an upward trend, so my portfolio will grow automatically. And I guess it will gain more than crypto trading bots are able to realize.

This was my line of reasoning in July/August 2020 when I saw cryptocurrencies gain 50-60-70% in a matter of weeks, while my trading bots only gained 15-20-25%. Time for some research.

I opened two accounts on crypto exchange Binance. One for the Top 10 cryptocurrency coins, and one for cryptocurrency coins 11-20, and started tracking and comparing the value of my Binance portfolios with my selection of 20+ crypto trading bots. An exiting venture, every evening after dinner entering the current position in Excel and seeing the charts develop. In this blog I want to share the results over the past 5 months.

Looking at the cryptocurrency market over the past 5 months, the first 3 months (mid-August to mid-November) show a sideways to slightly negative trend. Results vary between 0 and -20%. The last 2 months (mid-November to mid-January) show enormous growth, with the larger cryptocurrencies (Bitcoin, Ethereum) gaining up to 200%.

A good way to follow the development of the broader cryptocurrency market is through the CMC Crypto 200 Index.


Because Bitcoin has a market dominance of 67% the crypto 200 index is also published without BTC (EX-BTC):


Both charts show that the cryptocurrency market didn’t gain much in the first 3 months, but doubled in value over the last 2 months. My charts show the same picture. The charts underneath show the results of my collection of crypto trading bots (blue line), my Top10 crypto coins portfolio on Binance (orange line) an my Top 11-20 crypto coins portfolio on Binance. The first chart shows the results in Bitcoin, the second one in euros.

Due to the enormous value increase of Bitcoin, the value of all three portfolios in BTC has decreased. Expressed in euros all three portfolios show an increase in value. In percentages:

  • Top10 coins portfolio on Binance: +88,6%
  • Crypto trading bots portfolio: +55,8%
  • Top11-20 coins portfolio on Binance: +40,1%

Let’s zoom in on the performance comparisons of the Crypto trading bots against the Top10 coins and against the Top20 coins (adding Top10 and Top11-20). First Bots (blue line) vs Top10 (orange line).

The 15 day moving averages show a better result for the Crypto trading bots (yellow moving average line) in the first three months compared to the Top10 coins (light blue moving average line). The Top10 coins lose up to 20% in value in this period, while the trading bots drop a maximum of 5%. Around day 96 the moving average lines cross. In the last two months the Top 10 coins have a clear advantage. What is striking is the difference in volatility. The trading bots show a more controlled price trend than the Top10 coins. Top10 coins is showing deeper valleys and higher peaks.

Let’s have a look at Bots (blue line) vs Top20 (orange line).

As seen before, Top11-20 coins didn’t perform as well as Top10 coins. Adding the results shows an almost identical performance for the trading bots (yellow moving average) and the Top20 coins (light blue moving average line). Again, the greater volatility of the value of the Top20 coins portfolio compared to the trading bots portfolio is striking.

So the question remains: Should I invest in crypto trading bots or should I buy a selection of cryptocurrency coins, and just hold them for a longer period of time? The above data suggests that a selection of larger volume coins is performing better. Or does it? Volatility is not what most investors are looking for. A controlled profit with the least possible risk is preferable. If the cryptocurrency market undergoes a correction, the fall of prices will be better controlled by the trading bots. But how do we take risk or volatility out of the equation and get a fairer comparison?

The answer is Sharpe ratio. The Sharpe ratio was developed by Nobel laureate William F. Sharpe and is used to help investors understand the return of an investment compared to its risk. Risk in this case is equal to volatility. A portfolio with a high degree of volatility is riskier than a portfolio with lower volatility. High volatility brings with it chances of higher profit but also chances of higher loss.To briefly summarize the usefulness of the ratio:

    • The Sharpe ratio adjusts a portfolio’s past performance for the excess risk that was taken by the investor.
    • A high Sharpe ratio is good when compared to similar portfolios or funds with lower ratios.

A higher Sharpe metric is always better than a lower one because a higher ratio indicates that the portfolio is making better investment decisions and not being swayed by the risk associated with it. Sharpe ratio grading thresholds are commonly interpreted in the following way:

    • <1: Not Good
    • 1 – 1.99: Ok
    • 2 – 2.99: Really Good
    • >3: Exceptional

To calculate the Sharpe ratio we need a risk-free rate of return. This is the return on an investment with zero risk, meaning it’s the return investors could expect for taking no risk. The yield for a U.S. Treasury bond, for example, could be used as the risk-free rate. In my calculations I used T-bonds or Treasury bonds. Treasury bonds are fixed-rate U.S. government debt securities with a maturity range between 10 and 30 years. I used the 10 year bonds.

The following chart represents the Sharpe ratios of the three portfolios, Crypto trading bots (blue line), Top10 coins (orange line) and Top20 coins (yellow line).

Let’s zoom in on the last two months.

The results in percentages:

  • Crypto trading bots portfolio: 3,52
  • Top10 coins portfolio: 3,20
  • Top20 coins portfolio: 3,16

The ROI (return on investment) of all three portfolios can be classified as exceptional. But when taking volatility out of the equation the portfolio with the highest Sharpe ratio after 5 months of comparing is the crypto trading bots portfolio.

The conclusion for now: if you like taking risk and you don’t mind the volatility, holding the larger volume coins (Top10) can bring you a higher return. The more responsible investor is better off with a broad selection of crytpo trading bots that will manage your assets with less risk. Based on the (preliminary) results they achieve a higher result over a longer period in a volatile market such as cryptocurrencies.

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