How does Cryptocurrency Portfolio Management differ from Equities?
Hi,
I have recently been trying to build a backtester/strategies to trade cryptocurrency.
How do we go about portfolio management compared to equities since not everything has the same numeraire?
Do we take all pairs and calculate prices for every traded currency in terms of one currency (say USD) and then proceed like how we would in equities? e.g. calculate optimal portfolio, risk, etc.
But then how do we rank based on previous day’s dollar volume? do we only use the most liquid path from an asset to USD? or do we aggregate across all possible paths to USD?
When trying to forecast future returns of our assets, do we only use the shortest series of hops? or do we also use information from the intermediate steps? e.g modeling ETHUSD (which is traded on exchange), do we use ETHUSD or (ETHBTC x BTCUSD)?