Cryptocurrency Portfolios Using Heuristics

Abstract

Given the support from academic studies for heuristic (naive) asset allocation strategies, this study compares the performance of seven heuristics, including four new heuristics, in forming a portfolio of six popular cryptocurrencies. As many cryptocurrency traders are retail investors, they are likely to use heuristics, rather than sophisticated optimization procedures. Our empirical analysis shows little difference in the out-of-sample performance of these seven strategies, indicating that it does not matter which heuristic is used by cryptocurrency investors. Therefore retail investors might as well use the simplest heuristic (1/N) strategy, whose performance has been widely studied and found to be comparable with that of portfolio optimization models.

Keywords: Cryptocurrencies; Heuristic Asset Allocation Strategies; Portfolio Management

JEL Classification: G11