Bitcoin (BTC) introduced traditionally low volatility this yr, argues the Dec. 2019 SFOX report launched on Jan. 8. Coupled with a decrease correl
Bitcoin (BTC) introduced traditionally low volatility this yr, argues the Dec. 2019 SFOX report launched on Jan. 8. Coupled with a decrease correlation with altcoins, there are rising indicators that the market might begin to behave in a extra predictable method. Nevertheless, the cryptocurrency asset class stays disproportionately dangerous in comparison with the inventory market.
In its remaining month-to-month report for 2019, the analytics agency SFOX analyzed the yearly efficiency of Bitcoin and different cryptocurrencies.
In comparison with conventional property similar to gold and shares, Bitcoin held a remarkably low correlation index for the previous six months. Its common 30-day correlation amounted to -0.037 for the S&P 500 and 0.149 for gold. As well as, the correlation between Bitcoin and altcoins dropped from highs of 0.7 to as little as 0.4.
Moreover, Bitcoin’s volatility fell throughout the later phases of the yr. Whereas nonetheless remaining effectively above the corresponding values for conventional property, cryptocurrency markets registered a comparatively low stage of volatility in comparison with 2018. BTC closed 2019 at 32.05 % historic volatility, which was within the backside 10 % of its volatility vary within the earlier yr.
Supply: SFOX report
The mixture of low volatility and low correlation “made BTC a compelling software for portfolio administration in 2019,” SFOX concluded. Nevertheless, it additionally highlighted that the info set shouldn’t be massive sufficient to make significant predictions concerning the development in 2020. Bitcoin choices contracts, similar to these just lately launched by Bakkt, suggest volatility of over 70 % for the second half of this yr.
Cryptoassets nonetheless disproportionately dangerous
BTC confirmed spectacular year-over-year returns of 93.Eight % in 2019, in comparison with the S&P 500’s 29 % and gold’s 52.Eight %. However whereas the decrease volatility might level to a gradual improve in market maturity, the danger remains to be outsized in comparison with the rewards.
The Sharpe ratio, a risk-reward measure that compares an asset’s returns with its volatility, was considerably greater for the S&P 500. The ratio’s worth for BTC amounted to 1.74 in 2019, whereas the main inventory market clocked in at 2.54. Which means conventional markets, regardless of their considerably decrease returns, have been statistically a extra worthwhile funding than cryptocurrencies.
It’s unknown whether or not these developments will persist in 2020. SFOX recognized the upcoming Bitcoin halving and introduction of choices contracts as potential optimistic drivers. Conversely, the latest Youtube content ban could also be an indication of upcoming stress from tech firms.