Grand on Nostr: There are five facts that summarize the current state of crypto investing. First, for ...
There are five facts that summarize the current state of crypto investing. First, for years, crypto was not viewed as a serious investment or asset class. Indeed, Satoshi Nakamoto’s seminal 2008 paper did not refer to ‘digital gold’; bitcoin is cast as a transactional mechanism. In recent times, the space has blossomed into a very diverse set of assets and has started to move away from niche towards mainstream.
Second, crypto volatility is very high. That said, it is relatively straightforward to achieve a lower volatility by mixing with cash, and we demonstrate that a risk-managed portfolio that mixes crypto with cash to achieve equity-like volatility has fewer left-tail events than equities over the limited sample. We also find that volatility persists in crypto assets as it does in other assets, and we demonstrate that trend-following strategies mostly outperform buy-and-hold strategies, judged by Sharpe ratios.
Third, while the correlation with other traditional risky assets such as equities is low in normal times, the correlation rises to quite high levels in the left tail of these traditional risky assets.
Fourth, there are practical considerations for institutional investors such as custody that need to be considered. Finally, given this is a new space, there are many unknowns such as the decisions that regulators will make over the next few years.
Second, crypto volatility is very high. That said, it is relatively straightforward to achieve a lower volatility by mixing with cash, and we demonstrate that a risk-managed portfolio that mixes crypto with cash to achieve equity-like volatility has fewer left-tail events than equities over the limited sample. We also find that volatility persists in crypto assets as it does in other assets, and we demonstrate that trend-following strategies mostly outperform buy-and-hold strategies, judged by Sharpe ratios.
Third, while the correlation with other traditional risky assets such as equities is low in normal times, the correlation rises to quite high levels in the left tail of these traditional risky assets.
Fourth, there are practical considerations for institutional investors such as custody that need to be considered. Finally, given this is a new space, there are many unknowns such as the decisions that regulators will make over the next few years.