Quantitative Analysis /

How Tellimer indices are optimised for the tech-fuelled crypto markets

  • Picking the winners and losers of the cryptocurrency arms race is made easier by casting a systematic net

  • The crypto dinosaurs of 2014 have failed to keep pace with modern coins of today – undermining “buy and hold” strategies

  • We explore the science behind the Tellimer Crypto Indices' outperformance

How Tellimer indices are optimised for the tech-fuelled crypto markets
James Huckle
James Huckle

Quantitative Analyst

Tellimer Research
16 August 2021
Published byTellimer Research

Holding Bitcoin alone outperformed buying and holding the top 10 coins from 2014 by 500%. And a market cap-filtered, weekly rebalancing index, such as the Tellimer Large Cap Index, outperformed holding Bitcoin alone by an additional 500%.

In this article, we explain why Tellimer's new Crypto Indices perform so well.

Tellimer index vs buy-and-hold

Four benefits of an index

1. Bet on crypto as an asset class

By holding the top coins by market cap at any given time, you gain wider exposure to the entire crypto asset class, as opposed to relying on the success of any individual coins.

2. Keep pace with technological innovation

The growth in blockchain innovation and the low friction to switch to the best-forming protocols results in blazing-fast shifts in market sentiment. An index that rebalances frequently will gain exposure to the best-performing technology over time, rather than being left holding a group of crypto dinosaurs.

The pioneers – the top 10 coins in 2014

Top 10 coins

Bitcoin has outperformed every other coin that was around in 2014. Technological advancements continue to drive price growth in the new coins – Ethereum being the most notable.

3. Handle cryptocurrency proliferation

The number of cryptocurrencies in circulation has grown exponentially since Bitcoin's inception in 2009, and currently stands at over 6,000. The sheer number of assets in crypto makes it increasingly difficult to predict the likely winners and losers.

crypto coins

4. Capture outlier performances

You have probably never heard of most of the top-performing coins. Casting a systematically wide net ensures exposure to these emphatic winners.

crypto table

The science behind index performance

To “buy-and-hold” a fixed set of assets is a popular investment choice due to its sheer simplicity and low cost; however, the costs and complexities of maintaining a dynamic index/portfolio are usually a worthwhile investment if one is looking to achieve the highest risk-adjusted performance in crypto.


Rebalancing on a regular basis allows your portfolio to remain maximally diversified in the best-performing coins. Conversely, it would not be uncommon for a single coin to end up representing 90% of a buy-and-hold portfolio over a long enough time horizon.

Diversification lowers the standard deviation of the portfolio’s returns and increases risk-adjusted returns. Holding 10-20 coins provides near-maximum diversification.

Buy low, sell high

The act of rebalancing redistributes profits from overperforming coins into coins that have underperformed – matching the original USD allocation – which allows for the automatic application of the popular mantra of "buy low, sell high".

buy low sell high

Statistical parameters that affect index performance

Monte Carlo simulations are used to compare how coin correlation, volatility and return dispersion affect index performance.

An index rebalanced on a weekly basis is compared with a static index (buy-and-hold). Each index contains 15 simulated coins and was run 100 times, with the average performance across the simulations being recorded.

How coin correlation affects index performance

The correlations between the 15 coins in each index were varied, but volatility and return dispersion was held constant in each index.

Asset correlation and index performance

The results indicate that a rebalancing index outperforms buy-and-hold by a larger margin the less correlated and more inversely correlated the underlying coins are to each other.

How coin volatility affects index performance

How coin volatility affects index performance

The results also indicate that a rebalancing index outperforms buy-and-hold by a larger margin when dealing with higher volatility coins.

How coin return dispersion affects index performance

Return dispersion = standard deviation ( log ( coins total return ) )

Tellimer crypto

A large dispersion in the returns of the underlying assets has the potential to cause an index to underperform simple buy-and-hold.

When do indices underperform buy-and-hold?

When the coins have low volatility and a large dispersion in return a rebalancing index will likely underperform buy-and-hold. It makes more sense to hold the highest-returning coin rather than taking profits from it and redistributing it to the lower-returning coins. The low volatility increases the statistical confidence of being able to pick the highest-returning coin after only a short period of time.

How two negative coins with enough volatility can lead to profits

The volatility of each coin is very high for demonstration purposes, but it highlights the plausibility.

Crypto indices

A more intuitive example:


A rebalancing index exploits some mathematical properties:

  • First, it exploits the negative correlation of the returns between each coin by redistributing profits from overperformers to underperformers.

  • Second, it exploits percentage mathematics; the growth periods in Asset A actually outpace the declining periods in Asset B, despite both declining on average.

Example: The second period saw Asset A rise by 50%, whilst Asset B only fell by 30% despite the absolute price chance being greater for Asset B.