100 Waves Bulletin #2
Today I’ll be introducing a new member of the 100 Waves family of strategies: 100 Waves ETH/USD Ether Hoard. Many of you probably will ask a fundamental question: what’s the purpose of adding yet another strategy trading the same ETH/USD pair, and which set is “better”? I’ll try to answer this question later in this bulletin, but first, another important announcement.
100 Waves got its own dedicated website under www.100waves.trade domain! It gathers all information about my strategies: presentations, backtest results, interactive charts which were previously dispersed around the internet. Please check it out and let me know if you spot a mistake. English is not my native language, but I’m doing my best to communicate (email@example.com is my new email address just for this purpose)
“My goal is to accumulate more ETH, not fiat” — I’ve heard this many times from crypto investors and it got me thinking: what’s the difference? For quite a long time I thought there’s none. If one invests in a strategy, and this strategy goes up 10x in USD value, he can buy 10x more ETH with those profits. If strategy is good at accumulating USD, it’s also good at accumulating ETH.
However, we have to compare not only profits, but risk as well. There are many facets of risk, but we’ll focus on one that’s most important and easiest to quantify: drawdown risk. Investment is in drawdown when it’s below its all time high. Consider holding ETH: if you just held it, on December 12th 2018, your investment was worth just 6% (in USD) of what it was worth when it reached an all time high less than a year earlier. The drawdown was -94% (in ETH it’s still 0%, of course, you can’t lose ETH value if you’re just holding ETH).
What about 100 Waves ETH/USD strategy (which will be called 100 Waves ETH/USD Dollar Yield from now on)? It was down 44% in its USD value at one moment in time (not necessarily at the same time the “buy and hold” strategy reached max. drawdown). But what if the investor cares only about max. drawdown in ETH? It lost 66% of ETH value (again, on a different day).
So let’s say there’s some alternative strategy that has exactly the same profits as of today compared to some arbitrary day in the past, but it had different max. drawdowns: in ETH it was -44% and in USD it was -66%. Investors who want to accumulate ETH should prefer this one over Dollar Yield. Profits may be the same, but the path to those profits was less stressful.
This thinking led me to creating a strategy called 100 Waves ETH/USD Ether Hoard. Ether Hoard is more aggressive and — at least in backtests — gives significantly better ROI than Dollar Yield. But what’s more important, it had just -52% drawdown measured in ETH (compared to -66%). Bigger gains, less pain, what’s not to like?
Well, if you look at USD worth of your investment, the picture is different. While profits are larger, maximum drawdown is higher as well (-56% vs -44%).
Maximum drawdown is not the best measurement of drawdown severity. For my strategies, I’m using an indicator called UIcer Index, which takes into account not only maximum drawdown value, but the whole history of drawdowns along the way. Then, I’m dividing profits by Ulcer, comparing pain to gain. And this comparison gives yet another indicator, which is my ultimate measure of strategy “goodness”: Ulcer Performance Index. You can check its value in the table published on the new website and you’ll see that from USD perspective Dollar Yield looks better.
To summarize: Ether Hoard profits are higher and in backtests, it had less drawdown, measured in ETH. Dollar Yield, even with lower profits, had better USD drawdown, and should be chosen if the investor looks at the dollar value of his investment.
How all this translates to strategy performance? Using the interactive chart one can easily compare the two strategies, both in USD and ETH terms. It’s easy to see that Ether Hoard was actually able to perform better (USD profit wise) than buy and hold during the last bubble, which is quite a feat! But when the bubble bursted, in late 2018, the profits from both strategies were at some point equal. After that, more aggressive Ether Hoard outperformed Dollar Yield again. In context of last bulletin, it’s worth mentioning that last May during which Dollar Yield lost a few percent because of volatile but flat market, wasn’t that bad for Ether Hoard which experienced no significant loss.
There are other differences between those two strategies, too. Dollar Yield uses USDC put into Compound to get additional income. Ether Hoard uses DAI, which is a more decentralized alternative to USDC, powered by MakerDAO. This brings slightly different risk profile to both strategies and enables people who cannot invest in interest generating instruments to invest in 100 Waves ETH/USD strategy.
And last one difference: since the goal of the new strategy is to accumulate ETH, the performance fee is also benchmarked against its ETH value.
The new strategy is here. Both Dollar Yield and Ether Hoard are 100% in ETH right now, so if you decide to switch, it may be a good time, despite high gas cost.