Macro Crypto Allocation

The portfolio aims to gain exposure to the cryptocurrency sector based on the macro environment using ETPs. 30 financial assets representative of all asset classes are selected. A PCA is used to extract the top 4 factors, which could be approximated by global growth, central bank policy, the dollar and sovereign risk. Over a long-term period, we find that these first 4 factors explain 83% of Bitcoin's variance. This is slightly less for ETH, but still significant. We dynamically detect the macroeconomic factors that best explain the performance of bitcoin and ether over a rolling six-month period and, based on the dynamics of the assets most correlated with each of these macroeconomic factors, we calculate an exposure score between 0 and 1 for both ETH and BTC. The unexposed portion remains in cash. Half of the exposed portion is then invested equally in Bitcoin and Ethereum using an Equal Risk Contribution (ERC) approach, i.e. the weight is deducted from the inverse of the volatility of each asset. The other half is allocated to the asset with the strongest signal if there is one, and otherwise as the first half. A small exposure to altcoins can be added in strong bull markets.