Who could have foreseen the events surrounding Terra (LUNA and UST coins) during the month of May? Crypto markets have been on a continued decline for months now, but this past month was something different.
I’ve been anxiously waiting until the end of the month to be able to review what the hell happened. Here you will see my crypto portfolio and how it fared in general. I also wanted to compare the portfolio performance with that of the stock market, and finally, check how correlated both asset classes are.
Disclaimers
As always, what I post here is simply my analysis of what happened last month. Do not take anything I write as investment advice of any kind.
Another disclaimer is that some of the links in this post might be referral links to products I use. That means that if you use them (for example to open an account on Coinbase) I might get a commission or some kind of bonus, but it comes at no extra cost to you. If you use my links, I will be grateful to you.
Luna – UST Impact on Portfolio Performance
I will open the post with the worst part: portfolio performance. As you heard, LUNA and UST coins collapsed during May, causing the subsequent collapse of other coins.
LUNA by itself went from over 41 billion dollars in market cap at the beginning of April, to under 800 million dollars by the end of May. That’s over 40 billion dollars of wealth destroyed in the blink of an eye.
The other component of the Terra ecosystem, the stablecoin UST, lost its peg around May 8th, going from a market cap of almost 19 billion dollars to just over 200 million at the time of writing.
Here is the chart showing the percentage movements of all 20 coins in the portfolio. LUNA is the brown line that dropped to -100%:
If you have checked my previous post, you know that LUNA (WLUNA to be more precise) accounted for roughly 9.1% of the 2022 crypto portfolio. Just the collapse of LUNA alone would have been a big hit to this pseudo-ETF. However, most coins, including the top 20 forming my portfolio also crashed.
By the end of May, the portfolio lost 36.65% of its remaining value, month-to-month. We are at the lowest point since its inception in December 2021, and I’m not sure that things will get better any time soon.
Here is a chart of the portfolio performance in terms of value ($) since it started:
Asset Class Correlations
In my last update, I mentioned how LUNA was the least correlated asset in the portfolio. I even mentioned that I may buy some more of it as a hedge. Luckily, I never went through with that.
This time, I wanted to add an extra data point to the correlation matrix: the US stock market. For a long time, Bitcoin and cryptos in general were heralded as a hedge against the stock market. However, it has become clear that they tend to move in the same directions.
I wanted to see for myself what the correlation looks like for the months in which I had this portfolio. As a result, I compared each coin with the exchange-traded fund VTI. VTI is an ETF containing most public companies in the US (over 4700, weighted by market cap) and as a result, I feel it is a good proxy for the entire stock market.
A score of 1 means that there is a perfect correlation: when one asset moves, the other moves the same way 100% of the time. A score of 0 means that there is no correlation, and a -1 is a perfect negative correlation. By taking a look at the last row (the VTI label) we can see that there is very strong correlation between all coins and the stock market.
I calculated the correlation number for the portfolio against VTI as a whole and got 0.94 as a result. So basically, at this moment, crypto is not a good hedge against stock market loses. I would look for other asset classes.
Adjusted Portfolio Allocations
Now that LUNA has completely disappeared from the radar, BTC, BNB, and ETH allocations have increased substantially. Bitcoin dominance in the portfolio is 16.64%, while BNB and ETH are 13.13% and 12.53%, respectively. Another notable change with respect to the previous report is that now ADA is in the top 5 again, and it is even bigger than DOGE.
Besides looking at a bar chart of the current allocations, I find it useful to display the data as a pie chart:
With a pie chart, I can quickly and visually get a sense of the portfolio distribution and diversification. For example, I see that the top 4 coins in the group now account for slightly over 50% of the entire portfolio.
The next 5 coins take up around 25%, and the final 11 smaller coins account for the remaining 25%. That means that the top 9 coins occupy around 75% of this account.
Summary Information
This section will provide a quick overview of the portfolio performance by month, and overall. I think it is better to have the information available at a quick glance for review.
- Monthly Portfolio Performance (May 1st to May 31st)
The portfolio lost 36.65% month-over-month and reached its lowest point since creation, at $51.42.
- Total Portfolio Performance Since Inception
The 2022 Crypto Portfolio is down 61.99% so far since its creation on December 23rd, 2021. That translates to $95.60 in paper losses.
Final Thoughts
Well, the debacle of LUNA and UST seems to be finally behind us, so I hope crypto markets can stabilize and recover from this. I know that Terra Labs have launched LUNA 2.0 and did some renaming of the old coins. Those will not be part of this portfolio, but hopefully, they can make it safe this time.
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What has been your investing experience so far in 2022? Let me know in the comments.