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Buying and selling ETH at the right time is hard. Let cdETI do it systematically for you.
Buying and selling ETH at the right time is hard. Let cdETI do it systematically for you.
Fear of missing out (FOMO) and overconfidence can lead to suboptimal decisions.
10/24/2023
Index Coop
Content
Deciding what digital assets to buy and when is trickier than it may appear. Despite the vaunted transparency of onchain assets, users still find it challenging to buy at the right time. Fear of missing out (FOMO) and overconfidence can lead to suboptimal decisions. And even the savviest allocators will experience significant consequences from missing just a few of the best days.
That’s one of the reasons the Index Coop is so bullish on onchain structured products: they take the guesswork out of buying and holding digital assets.
Our earliest products—Index tokens like DPI and MVI—made it easy for users to passively hold a basket of thematically linked tokens. With the launch of the Index Coop CoinDesk ETH Trend Index (cdETI), an automated strategy token powered by CoinDesk Indices’ Ether Trend Indicator (ETI), the Index Coop is making it easy for users to capitalise on ETH’s price momentum without having to manually manage an ETH position. Learn more about cdETI and how it works
In this article, you’ll learn:
How FOMO can drive suboptimal decisions
How luck can lead to overconfidence and excessive trading
How small mistakes can have big consequences when timing the market
You’ll also learn more about how cdETI takes the guesswork out of managing your ETH position.
FOMO can drive suboptimal decisions
Bitcoin prices rose rapidly during 2017, reaching $20,000 by the end of the year. A considerable driver behind this surge was FOMO, the Fear of Missing Out. Many buyers, seduced by the rapid appreciation, bought up Bitcoin, driving the price up further.
However, the narrative took a drastic turn in 2018 as the price dropped ~81.1%. As Bitcoin's value tumbled, holders rushed to exit their positions, often resulting in net losses. Chainalysis has a thorough write-up about how long-term buyers sold $30 billion of Bitcoin to new speculators between December 2017 and April 2018.
According to research, emotion-driven trading is also common. A study published in Finance Research Letters investigated over 2 million posts on Bitcointalk.org to quantify emotional factors and analyse their impact on Bitcoin price fluctuations. It found that emotions significantly affect the total return variation process of cryptocurrencies.
Luck can lead to overconfidence and excessive trading.
While a healthy dose of confidence can bolster decision-making, overconfidence can be perilous for allocators of digital assets. Overconfidence tricks users into thinking they have a unique market understanding.
In a paper on attribution bias, researchers found that bull markets, particularly, can lead allocators to “incorrectly attribute trading successes (luck) to their own abilities.”
The researchers further found that this overconfidence was apparent in “excessive trading” behaviour and could not be explained by the “disposition effect and the tendency to gamble.”
Small mistakes in timing the market have big consequences
The dual challenge of market timing emerges not just when entering the market but also when exiting. To truly capitalise on market movements, one needs to accurately predict the optimal buying and selling points—a feat easier said than done.
While some savvy digital asset buyers may feel confident in their ability to time the market, missing out on even a few days of gains can have big consequences. A study showcased the growth of $10,000 in the S&P 500 from December 31, 2006, to December 31, 2021, comparing staying invested vs. missing the best days in the market. The data showed that an investment would grow to $45,682 with a 10.66% return if invested for 15 years. In contrast, missing just the 30 best days would result in a negative annualised return, turning $10,000 into $8,3651.
How cdETI takes the guesswork out of managing your ETH position
cdETI aims to capture gains during bull phases and preserve capital during bear phases by allocating to USDC and/or ETH according to values from Coindesk Indices Ethereum Trend Indicator (ETI). By holding cdETI, users can benefit from an automated and data-driven strategy that takes the guesswork out of maintaining exposure to ETH and ETH price momentum.
cdETI utilises the following methodology:
When ETI is 1, indicating a significant uptrend, cdETI allocates 100% to ETH
When ETI is 0.5, 0 or -0.5, indicating an uptrend, neutral or downtrend, respectively, cdETI allocates 50% to ETH and 50% to USDC
When ETI is -1, indicating a significant downtrend, cdETI allocated 100% to USD
Backtest data shows cdETI potentially outperforming ETH over the last two years.
Disclaimer: cdETI is a very high risk product unsuitable for many crypto users. Past performance is no guarantee of future returns. The performance of cdETI is dependent on CoinDesk's ETH Trend Indicator, cdETI’s methodology and tracking and various other factors. Please seek professional advice before buying cdETI. cdETI may deliver zero or negative returns compared to holding ETH or stablecoins. See larger disclaimer below.
For a more detailed explanation of cdETI’s methodology, please read the forum post. You can also review CoinDesk Indices' Ether Trend Indicator methodology here.
More Resources
cdETI product pageThe Index Coop’s forum postIndex Protocol explainerConDesk Indices’ Ether Trend Indicator dashboardcdETI dashboard on Dune
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