Different ways to invest in Bitcoin compared

In the dark days before Christmas, while contemplating my Bitcoin strategy for 2021, I asked myself the question which options are available. I came up with three different strategies; (1) Buying Bitcoin trackers, (2) Buying trading bots that have Bitcoin as basecoin and (3) Buying USDT based single coin trading bots that trade Bitcoin. All three strategies are contrasted against holding bitcoin on Binance (the yellow line in all charts).

First category: Bitcoin trackers

Bitcoin trackers invest your money in Bitcoin and do not touch it until you decide to sell. They promise to follow the price of Bitcoin 1:1. I purchased 3 trackers:

  • The Big Friendly.bot:
    According to the botcreator, The Big Friendly.bot is the easiest way there is to buy Bitcoin. As soon as you start the bot, it invests in the mother of all crypto currencies: Bitcoin. Once this is done, it does not touch the investment at all.
  • Bitcoin XBTE Bitcoin Tracker EUR XBT Provider (SE0007525332)
    The certificates provide exposure to the performance of the digital currency bitcoin by synthetically tracking performance of the price of bitcoin (BTC/USD) less a fee. (More info: https://coinshares.com/etps/xbt-provider/bitcoin-tracker-euro)
  • VanEck Vectors Bitcoin ETN (DE000A28M8D0):
    This Exchange Traded Note (ETN) gives direct access to the largest and most liquid of cryptocurrencies: bitcoin, 100% backed by bitcoins, stored in cold storage with a regulated custodian with crypto insurance (limited amount coverage) Tradable as an ETF with Deutsche Boerse Xetra. (More info: https://www.vanecketfs.nl/producten/VanEck-Vectors-Bitcoin-ETN/32/overzicht)

The results over the last 2 months are not very surprising.

As expected all three trackers follow the price of Bitcoin very closely. Only disadvantage of the two listed trackers is that you are not able to trade outside the stock market opening hours. This can be a big risk as you can’t protect yourself against price drops after closing of the stock market or during weekends. Cryptocurrency markets are always “on”, with 365/24/7 trading activity. In the event of a crash of the cryptocurrency market on Friday evening, you can only intervene on Monday morning.

The Big Friendly.bot can always be sold as the Bots platform strives to be open and functional 24/7.

Second category: Bitcoin based trading bots

These trading bots have Bitcoin as their base coin and should multiply their value in Bitcoin through trading Bitcoin-pairs. I selected three bots for my comparison.

  • CBS by Altrady:
    A unique algorithm that works by automatically analyzing the market history for each available market, checks current prices against previous support levels and will ensure the bot buys low and sells high.
  • Thunderbird by Dagobert Buck:
    This trading bot focuses on BTC pairs (BNB, ETH, LTC, AION, ALGO, ANKR, ARPA and ATOM) and tries to predict the future of a pair by estimating the USDT components. So BNBBTC is predicted by looking at BNBUSDT and BTCUSDT.
  • DeFi Strategy by Dagobert Buck:
    This trading bot focuses on the top 10 currencies in the world of Decentralized Finance (DeFi). The currencies are LINK, LEND, MKR, SNX, COMP, YFI, ZRX, REN, KNC and BAND. It uses the same strategy as Thunderbird, trying to predict the future of a pair by estimating the USDT components.

Two of the bots have been following the pricetrend of their basecoin Bitcoin, hence have not been trading much, at least not successfully. The third bot has lost value to Bitcoin through its trades. None of the bots have been able to make money through successful trades.

This goes for most of the bots on the Bots platform that do not have a stable coin (USDT) as their basecoin, but a coin like Bitcoin, Ethereum or BNB. When looking at their performance in crypto currency, most show a negative result. The bots are not able to successfully trade, and multiply the amount of basecoin you have invested in. The stellar results in euro as shown in the app are caused by even more stellar results of their basecoin.

Although most (unaware) users are happy with the results of these bots, and Revenyou is proudly using these results in there marketing stratgies, investing in a tracking bot that follows the pricetrend without intervening or investing directly in the coin (not through a bot), would have resulted in a higher gain.

Third category: USDT based single coin trading bots that trade Bitcoin

These trading bots have stable coin USDT as their basecoin and try to multiply their value by trading Bitcoin. I selected two bots for my comparison.

  • Himalaya by Boosting Alpha Netehrlands:
    A moderate and stable bot that only trades in Bitcoin. Through its cautious approach it tries to participate in winning prices and to stop in time at falling prices.
  • Sweet Orange Mia by Team Agga Technologies:
    This trend trading bot trades in Bitcoin and was created to focus only on the greater benefits of the crypto market. The bot will stop trading if the market is stagnant.

These bots will not gain as much as Bitcoin, but are designed to hold on to their profits in declining markets. Two months is too short a period for reviewing or judging these bots, especially in the growing market we have experienced for the past two months. Although the chart shows that the bots were able to hold on to gains when Bitcoin prices fell, and even outgain Bitcoin in certain instances, the overall gains in two months are half of the Bitcoin gains.

Unlike trackers and BTC based bots, these trading bots will exit declining markets themselves and hide in their stable coin to protect gains. Less risk, more ease of mind for the owner.

A fourth strategy which I have started in the beginning of February is trading Bitcoin myself on Binance. Together with a friend I am developing a strategy   to multiply the amount of Bitcoin through trading in BTC pairs (more or less simular to category two described above). Our goal is to earn more bitcoins and to profit from rising Bitcoin prices. If you don’t have the time, knowledge or interest in developing your own trading strategy another option is copy trading, where you can automate your Bitcoin trades using signal providers.

Let me know through the comments if you know of any other strategy, if you have other experiences with the strategies described above, or if you have any other comments or additions.

Final results: “Should I invest in crypto trading bots or should I buy crypto coins myself?”

A month ago I tried to answer the question:”Should I invest in crypto trading bots or should I buy crypto coins myself?”

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

To answer the question I have been comparing three portfolios. Two portfolios on the Binance cryptocurrency platform in which I bought and held on to a selection of crypto coins (Top 10 cryptocurrency coins and cryptocurrency coins 11-20) and one portfolio with my selection of 30+ crypto trading bots on the Revenyou Bots platform.

After six months of comparing the performances of three portfolios, here are the final results.

Euro results three portfolios

The results of the three portfolio’s after six months as per mid February 2021 (5 months results as per mid January 2021):

  • Top10 coins portfolio Binance (orange line): +291,12% (+88,6%)
  • Top11-20 coins portfolio Binance (grey line): +172,67% (+40,1%)
  • Crypto trading bots portfolio Revenyou Bots (blue line): +141,49% (+55,8%)

Incredible gains in the last month, where both Binance holding portfolios have outperformed the crypto trading bot portfolio. The difference in ROI (return on investment) of the Binance Top 10 portfolio as compared to the crypto trading bot portfolio is shown in the following chart.

A positive score on the chart means the “Revenyou portfolio” has a higher ROI than the “Binance portfolio”. For example if the “Revenyou portfolio” has a return of 20% and the “Binance Top 10 portfolio” has a return of 50% the result on the chart will be 20 – 50 = -30%

(Return On Investment Crypto Trading Bot portfolio) -/- (Return On Investment Binance Top 10 crytpo coin portfolio)

The same chart showing the difference in ROI of the “Binance Top 20 portfolio” (Binance Top 10 + Binance Top 11-20) as compared to the “crypto trading bot portfolio”.

(Return On Investment Crypto Trading Bot portfolio) -/- (Return On Investment Binance Top 20 crytpo coin portfolio)

The performance of the Binance Top coins holding portfolios in the last 30 days has been stellar, resulting in an outperformance of the Top 10 coins of 149,63% and an outperformance of the Top 20 coins of 81,67% compared to the Revenyou crypto trading bots portfolio.

The above data suggests that holding a selection of larger volume coins is wiser than buying crypto trading bots. But as noted last month, the risk due to the volatility of holding on to the individual coins is much higher than owning crypto trading bots.

Crypto trading bots work like asset managers, buying and selling crypto coins for you depending on market conditions and signals. Managing your assets reduces risk meaning both gains and losses will be smoothed out. Volatility (risk) 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.

How do we take risk or volatility out of the equation and get a fairer comparison?

The answer is Sharpe ratio. Next italic explanation is copied from last months post and can be skipped / fast forwarded if you know all about Sharpe ratio by now.

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 shows the development of the “10 Year US Treasury Yield” over the past 6 months. The yield has almost doubled in half a year, increasing from 0,675% mid August 2020 to 1,301% mid February 2021

Development of the “10 Year US Treasury Yield” over the past 6 months

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).

Sharpe ratios of Crypto trading bots (blue line), Top10 coins (orange line) and Top20 coins (yellow line)

The Sharpe ratio results (last months results):

  1. Top10 coins portfolio: 4,54 (3,20)
  2. Crypto trading bots portfolio: 4,27 (3,52)
  3. Top20 coins portfolio: 4,21 (3,16)

The ROI (return on investment) of all three portfolios can be classified as more than exceptional, scoring well above 3. After a month with ‘out of the ordinary’ crypto results the portfolio with the highest Sharpe ratio is the Top 10 coins holding portfolio.

Final conclusion after six months of comparing:
Based on the proposition “A higher Sharpe metric is always better than a lower one because a higher ratio indicates that the portfolio is making better investment decisions” the Top 10 coins holding portfolio wins.

If you like taking risk, you don’t mind the volatility, and you believe in the future of crypto currency, holding the larger volume coins (Top10) would have brought you the highest return in the past six months. Even corrected for risk/volatility this would have been the best choice. The more cautious investor probably sleeps better with a broad selection of crypto trading bots that will manage your assets with less risk. In a declining market or market moving sideways (like the first three months of my comparison) the bots will absorb eventual blows better.

Final note: This comparison doesn’t involve trading by yourself. All three portfolios are buy and hold portfolios for “lazy” investors. The adage has been: Let the coins and the bots work for you, and do not intervene.

Boosting Alpha trading-Bots performance per January 2021

Boosting Alpha trading-Bots performance per January 2021

The final day of the month so again an overview of the January performance of our trading bots on the BOTS platform. January was one of the most volatile months so far, with the crypto markets acting like a rollercoaster. On average our bots managed to profit from this volatility with an average return of 10,75% but there is a high diversity across the bots.
Two of our bots (Fasten Your Seatbelts and Karpe Diem) managed to profit with almost 100% in January while there also were a number of bots that declined.

Again a good proof that it is always wise to spread your investment across multiple bots. Spreading your investment across multiple bots is free in the BOTS app, so it is stupid if you do not use it.

Also for the crypto fund service business we are building up now, it is quite nice. The average performance of our bots has been positive in all months so far, with only a small decline in September 2020. Since this type of business is 100% performance related, this ensures a relatively stable income.

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.

CMC-CRYPTO-200-INDEX-BY-SOLACTIVE

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

CMC-CRYPTO-200-EX-BTC-INDEX-BY-SOLACTIVE

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.