Stocks or Crypto? 6-Months Portfolio Performance Updates and Comparisons

So 6 months ago, I decided to conduct a fun experiment to see whether stocks or crypto will deliver better returns as a portfolio in the same time period. If you have not read it, you can do so here first.

Crypto becoming mainstream

As we all know, stocks have historically been the best performing asset class of the century but the recent boom in crypto has been taking the investing world by storm as digital assets deliver jaw-dropping returns that left Traditional Finance folks in disbelief.

Be Open Minded or Get Left Behind (Again)

“It’s just a bubble.”, “It’s all speculation and Bitcoin does not generate any revenue”. “It’s a Ponzi scheme”, “It’s a scam!”. These are some of the things you might hear about crypto – as with any uninformed, ignorant folks dismissing anything new. The fact is, crypto is more than just currency or being a coin. They are a whole new asset class with use cases beyond anyone’s imagination because blockchain technology is laying grounds for the new internet. So if you still think crypto is all about Bitcoin or Ethereum, or worse.. Doge, you’ll be surprised. There are so much developments in the crypto space right now.

As a refresher, below is the portfolio criteria and also the portfolio that were used for comparison:

Portfolio Criteria

The criteria is simple. All three portfolios will have a total of 5 positions, with allocations spread evenly (20% weighting each) at a starting capital of $100,000 USD.

All 3 portfolios were started at the same time, and the stock prices were taken as the closing price on 18th June 2021. As for crypto, their prices were taken as of the time of writing on 20th June 2021.

The portfolio inception date is 20th June 2021, no rebalancing will be done, no additional buy-ins, no sell-offs, all 3 portfolios will just naturally grow into their new allocations.

Returns will be purely based upon future returns.

This will give equal opportunity for each portfolio to demonstrate their growth potential, and used as arguments as to whether stocks, stocks ETF, crypto or combination of both will provide better overall returns.

Results will be tracked and published on a semi-annual basis for more meaningful analysis and performance.

Here are the portfolios:

If you want to understand the reasoning behind these portfolios, you can check out the previous post here

Portfolio 1: 100% Equities-Growth ETF Picks

1. QQQ (Invesco QQQ ETF) – 20%
2. ARKK (ARK Innovation ETF) – 20%
3. ARKG (ARK Genomic Revolution ETF) – 20%
4. ARKF (ARK Fintech Innovation ETF) – 20%
5. WCLD (WisdomTree Cloud Computing ETF) – 20%

Total: $100,000 USD (As of 20 June 2021)

6 Months Later:

As of 19 December 2021

Current Portfolio Value: $87,790 USD (-12.16% YTD)

Looks like Tech-heavy tilt wasn’t the right allocation with the changing macro environment regarding Federal Reserve rate hikes and QE tapering that tends to hurt Tech Growth stocks the most. If interest rates really were to increase come 2022, this portfolio might see some short-medium term volatility as investors and funds de-risk their portfolio towards defensive stocks and value plays.

The portfolio allocation also grew into a new weighting based on the respective ETF performance with QQQ (Nasdaq-100) having the best relative performance and ARK Genomic Revolution ETF having the worst relative performance in the portfolio.

Time Weighted Returns vs Major Indexes (Year-To-Date)

2022 might see ‘easy money’ and speculative bets start to dwindle as the global economy recovers and the money printing slowing down.

Since this portfolio comparison is meant for the long term, there won’t be any adjustments made to this portfolio since it is diversified across many tech companies, even though there is an overweight on the Tech sector. Still, my view of the equities market is that Tech will outperform any other sector this decade, just like it did in the last decade.

In this new decade of high inflation, value stocks and companies with large cash reserves will feel the pain for sure sooner or later.

But that is just my view.

Portfolio 2: The “Community-Pick” Portfolio

1. Bitcoin – 20% (Crypto)
2. Ethereum – 20% (Crypto)
3. Tesla – 20% (Stocks)
4. Apple – 20% (Stocks)
5. Zilliqa – 20% (Crypto)

Total: $100,000 USD (As of 20 June 2021)

*Slight deviation due to crypto prices

6 Months Later:

As of 19 December 2021

Current Portfolio Value: $133,831.74 USD (+33.90% YTD)

The Community-Pick Portfolio fared much better than Portfolio 1’s Growth ETF Portfolio.

If we take a look at what made this portfolio better than Portfolio 1, it seems that Ethereum and Tesla were the standouts in this portfolio that pulled the weight for the portfolio.

For a hybrid stocks and crypto portfolio, I personally feel that it was able to capture higher risk-adjusted returns through higher beta plays like Ethereum. The worst performer in this portfolio happens to be Zilliqa, which is expected since crypto is seeing an aggressive sell-off in recent weeks and smaller-cap Altcoins are sure to take the hit.

Bitcoin and Apple maintained their allocation weightage, and added some downside risk protection for the portfolio given the “Blue Chip” status of the 2 assets in their respective realms.

Time Weighted Returns vs Major Indexes (Year-To-Date)

If you had this exact portfolio at the start of this year, you will easily have beaten all traditional indexes such as the Straits Times Index, World Stocks Index, and the popular S&P 500 index.

Given that no portfolio adjustments were made, we can clearly see the benefits of adding crypto into a traditional stocks portfolio. While Teslacontinues to outperform in the stock market realm, the real out-performer in this portfolio turns out to be Ethereum, and it’s also a no brainer why.

Ethereum is the leading smart contracts Layer-1 blockchain platform with the largest network effects, volume, liquidity depth, user, developers and Dapps.

While people may argue Ethereum is un-usable for most retail users (I tend to agree), the Ethereum Foundation is already coming up with scaling solutions to help Ethereum via Layer-2 solutions and also the inevitable Ethereum 2.0 upgrade planned in H1 2022. You can understand more about Ethereum in the post here.

This portfolio would be how a TradFi investor transitioning into the crypto rabbit hole would look like, and I will expect this portfolio to continue outperforming the stock market over the long run. There will be no adjustments made to this portfolio as well.

Portfolio 3: 100% Crypto Picks (By yours truly)

1. Ethereum – 20%
2. Fantom – 20%
3. Sushiswap – 20%
4. Binance Coin – 20%
5. Chainlink – 20%

Total: $100,000 USD (As of 20 June 2021)

*Slight deviation due to crypto prices

6 Months Later:

As of 19 December 2021

Current Portfolio Value: $197,684.71 USD (+97.68% YTD)

Crypto is still in it’s early innings, and to me is the most asymmetric trade of the decade. Web3 is going to eat TradFi, as more and more jobs gets automated away and many of the great middle class jobs today will be disrupted eventually by AI, automation and smart contracts etc. Banks today are making so much money and keeping it for themselves, DeFi gives the consumer a chance to make it fair and square, which is why the interest in DeFi is so much higher than the Traditional World.

This portfolio incepted based on what I think will be a great passive crypto portfolio made up of some crypto blue-chips spread across different use cases.

Yes, I would have make some changes if possible since crypto is moving so fast and innovation is happening at lightning speed. But I am confident this portfolio will continue to outperform the stock market since the 5 assets here are projects with great fundamentals behind them.

Short term wise, I won’t know if this portfolio will continue to outperform, but I do know that in the long run, this portfolio will hold up and continue to crush expectations.

In particular, Fantom is the huge winner of this portfolio. FTM basically did a 5x since the inception of the portfolio and taking up nearly half of the portfolio now. The second best perform turns out to be Ethereum followed by BNB. A testament to the performance that Layer-1 coins can deliver if you invest in the right ecosystems.

Chainlink is the dominant player in the Oracles space, but relative performance wise, it did not perform as well but I won’t be concerned about Chainlink’s downside in the bear, since it is integrated into so many projects that it will always be around.

Sushi is the confusing one. The project is essentially a DAO (Decentralised Autonomous Organisation) and many things have changed since I first made this portfolio post. The lead developer of Sushiswap 0xMaki, has stepped down from the project, and the community was in ruins for quite some time. Now, Daniele Siesta is looking to take over Sushi which brings some narrative regarding turning Sushi into a DeFi 2.0 project(?)

Many things yet to be seen for Sushiswap but fundamentally (P/E, P/S ratio wise), Sushiswap is one of the most undervalued and (somehow) least sort after DeFi token in the entire DeFi space. Which is odd given Sushi’s roadmap and the fact that it exist on almost every blockchain ecosystem.

Once again, the markets can remain irrational for a long period of time, and no one will ever know what happens in the short term. However, given how new DeFi is and how new the entire crypto space is (heck metaverse and Play-To-Earn wasn’t even a narrative 6 months ago), the exponential growth that we are about to see for the crypto market will continue to leave traditional hedge funds and stock market investors in disbelief.

Crypto will permeate every sector

Crypto will eventually be integrated into every sector of the economy, from the financial sector to gaming, to supply chain to healthcare, to E-Commerce yada yada yada… if you still think crypto is a passing fad, well, too bad for you.

The best place to start would be to understand how Bitcoin work, and then Ethereum. Or even better, getting started on a game like Axie Infinity or buying NFTs will also get you down to understand this rabbit hole in no time. The best way to understand crypto is not by reading about them, it is by using the protocols yourself and tinkering the hell out of it as much as possible.

Side-By-Side Performance Comparison

Portfolio 1 (Tech Heavy ETFs): $87,790 USD (-12.16% YTD)

Portfolio 2 (Hybrid Stocks/Crypto): $133,831.74 USD (+33.90% YTD)

Portfolio 3 (Full Crypto): $197,684.71 USD (+97.68% YTD) (Overall Winner!)

Okay I get it. You may say the first portfolio is unfair since growth stocks are taking a hit now. But that is hindsight bias, everyone was betting on Growth stocks 6 months ago.

The portfolios are fair and square since no adjustments will be made. I want to compare the performance in the long term, and so far the past 6 months have proven that crypto continues to take lead, and the same for my personal portfolio as well (which likewise is 100% in crypto) despite the current crypto market sell off.

Also, this experiment also shows how difficult it is for traditional finance instruments to actually beat standard indexes like S&P 500, but adding crypto into portfolios might prove to be a higher beta play to capture higher upsides and help you outperform the market.

Crypto sounds great, but only if you understands them

Again, circle of competence applies to the crypto markets just like it does for the stock market. Everyone has different personality, time horizons and risk tolerance levels, and hence the type of crypto to be adopted will depend on how much you understand them, whether you have conviction in them and whether you are able to withstand periods of volatility.

Investing is risky if you don’t understand what is going on, and even more so if you copy other traders or investor without any understanding. Trend following is a bad strategy over the long run because knowing the entry without understanding the gameplay or exit strategy is setting yourself up for big big trouble.

Again, I go back to Peter Lynch’s quote: “Know what you own, and why you own it.”

The real risk is not understanding what you own. Markets don’t go up in a straight line, so please do your own research and due diligence, take opinions online with a pinch of salt and build your own thesis. If not, you will just get shaken out from the volatility and lose all your hard-earned money.

Investing does not equate to speculating. If you focus on price, you are a speculator. Know the difference.

Conclusion

Crypto takes the win against stocks hands down in this semi-annual portfolio breakdown.

At a total market cap of less than $3 Trillion, the crypto market still has huge room to grow as more people start to understand the different use cases and benefits crypto bring to mankind.

DeFi will continue to eat into TradFi’s market, while NFTs will bring more autonomy to content creators and artists, and GameFi projects will continue to disrupt traditional gaming who has historically been making fat profits for themselves while providing zero monetary value for their consumers.

The story of crypto vs Traditional Finance is the tale of David vs Goliath. It is only a matter of time.

If you think crypto is interesting but you find it hard to learn about them, you can consider joining my Telegram Group** **where I share articles, investment opportunities and more research based content on an almost daily basis. You can also ask questions, and take part in polls to see how others think as well!

Join My Tele Channel Here For Blog Updates And More!

For those who are already into Crypto

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What is Bitcoin? Answers here

Or do your due diligence on Bitcoin in my post here where I debunk some of the myths regarding Bitcoin.

What is Ethereum? Simple Guide Here

I did a bite-sized article on Ethereum for you to get a crash-course on what the buzz word is all about here.

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What is Decentralised Finance (DeFi)?

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How to Value Crypto Assets?

Learn more about how you can put a “fair value” on crypto such as Bitcoin, Ethereum and more here

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Disclaimer:

The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment.