Smart beta strategies are popular in traditional financial markets, but they are also gaining traction among crypto enthusiasts and traders. At their core, smart beta strategies are automated trading models that implement systematic rule-based approaches and aim to outperform the main market’s benchmarks by focusing on volatility, momentum, or value.
In crypto, it can be difficult to implement such strategies since the data and algorithms required are different from tradfi market, but Trakx, with its proprietary in-house tech infrastructure, is one of the first financial institutions that offer smart beta strategies in its crypto index funds, allowing investors to implement advanced crypto index trading strategies. Let’s understand better how smart beta strategies work, and how Trakx provides them in customized and advanced crypto baskets.
How Trakx is implementing Smart Beta Strategies in Crypto?
Before analyzing how to implement smart beta strategies in crypto, let’s take a moment to understand better how they work and the differences between applying them in tradfi and in crypto. Unlike traditional index funds, which are typically market-cap-weighted, smart beta crypto index funds weigh the components of the basket based on specific factors such as volatility, momentum, value, or size, aiming to achieve better risk-adjusted returns than traditional market-cap-weighted strategies. Basically, smart beta is a hybrid investment strategy that mixes the best elements of passive and active management, allowing you to implement an advanced strategy while ensuring passive management through automatic period rebalancing.
Trakx, recognizing that the crypto market is characterized by higher volatility and risks compared to tradfi, developed customized crypto baskets that allow investors to implement advanced strategies while ensuring sound risk management and automatic rebalancing. Trakx smart beta indices aim to outperform the market’s benchmarks by implementing a systematic approach through advanced strategies based on quantitative analysis and automatic rebalancing, ensuring the growth potential and inherent risks are always aligned with investors’ goals. In fact, the advantages of smart beta models also lie in their flexibility and adaptability to dynamic market conditions and users’ needs, tailoring strategies according to risk tolerance, investment horizon, personal needs, and market changes.
In a dynamic, volatile market, such as the crypto one, having a responsive and efficient strategy is essential, and Trakx allows you to do it through Crypto Tradable Indices, proprietary crypto baskets that allow for advanced strategies, easy diversification, and sound risk management.
What Smart Beta Crypto Index Funds does Trakx offer?
Trakx is currently the leading platform for crypto-index trading, offering the widest selection of crypto index funds and smart beta strategies. There are more than 20 Crypto Tradable Indices (Trakx’s crypto index funds), and some of them are specifically designed to implement smart beta strategies based on momentum, value, and more. What are the crypto indices based on smart beta?
Digital Inflation Hedge – Performance until August 22, 2024
The Digital Inflation Hedge Crypto Index is composed of Pax Gold and has a dynamic exposure to Bitcoin and USDC. The index is designed to increase the exposure to Bitcoin during positive trends, while reducing it during market downturns, increasing instead the allocation in stablecoin (USDC). Dynamic exposure is regulated by technical indicators used in quantitative analysis, and algorithms automatically adjust BTC and USDC exposure based on them, allowing investors to seize the opportunities in positive trends while reducing risks in negative trends.
BTC Momentum – Performance until August 22, 2024
The BTC Momentum Crypto Index trades only long bitcoin positions, with an allocation of either 0%, 50% or 100%, identifying trend breakouts and applying filters to mitigate weak trading signals. The remaining of exposure is allocated to USDc. A daily rebalancing is operated with steps of 50% for allocation changes. In this way, exploiting momentum technical indicators, the crypto index is automatically rebalanced on a daily basis to suit market conditions, reduce risks, and exploit potential opportunities.
Diversifier – Performance until August 22, 2024
The Diversifier Crypto Index is composed of crypto assets that have the lowest correlation to a traditional portfolio (composed of 60% ETF US Equities and 40% ETF US Bonds). The constituents of this basket (3-5 tokens) are picked through a quantitative algorithm that identifies those with the lowest 3-month correlation to the standard portfolio, then allocates them to enhance the historical Sharpe ratio.
Bitcoin Control15 – Performance until August 22, 2024
The Bitcoin Control15 Crypto Index implements a systematic approach, and is composed of BTC and USDC. It uses a control mechanic that is set to maintain the volatility around 15%. The volatility is controlled by decreasing the amount of BTC during periods of higher risks, consequently increasing the amount of USDC.
Recovery – Performance until August 22, 2024
The Recovery Crypto Index is designed to get exposure to a basket of 10 tokens that have undergone notable price drops but have robust on-chain financials, presenting investors with an opportunity to gain exposure to tokens with strong fundamentals and the potential to recover significantly when the market rebounds. The index is equal-weighted, and the algorithms select the tokens based on the lowest P/F ratio and the highest dropdown ratio over the last 12 months.
Trakx Solutions: Tailored Crypto Baskets for your Needs
Having developed an independent and proprietary tech infrastructure, Trakx not only allows retail and institutional investors to trade advanced crypto index funds but also allows financial institutions, businesses, KOLs, DAOs, and communities to create customized crypto index funds tailored to their needs. With Trakx Solutions, you can basically create a custom index fund by following a straightforward process, selecting the components of the index, their allocation in percentage, and the rebalancing model. That’s not all because, for more advanced strategies, such as smart beta strategies and quantitative investing, Trakx can also reproduce your strategies just by copying the NAV through API, providing you the necessary infrastructure, security, and tech expertise you need to make your own-discretionary crypto index strategy natively tradable 24/7 on Trakx highly regulated platform.
It’s just the beginning, and smart beta strategies in crypto can provide the same advanced opportunities for every investor, bringing accessibility and creating a fair crypto investment ecosystem.
