Study: Despite Perceived Riskiness, Bitcoin Has a Higher Risk-Return Ratio Than Most Traditional Assets
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Study: Despite Perceived Riskiness, Bitcoin Has a Higher Risk-Return Ratio Than Most Traditional Assets

May 16, 2019      Cryptoknowmics


It’s no secret that one hallmark of Bitcoin and the entire crypto markets is that they are volatile, going through major pricing cycles at a rapid speed that limits investing in the nascent technologies for only the brave of heart.

Despite this, recently released research signals that Bitcoin actually has a far higher risk-return ratio than most major traditional assets, which may provide some solace to crypto investors who fear that increased volatility will lead to potential losses down the road.

Bitcoin (BTC) Surges to Fresh Year-To-Date Highs Amidst Widespread Market Recovery

It is important to note that the positive risk-reward ratio that Bitcoin has compared to other assets has been largely driven by the cryptocurrency’s massive price surges that it has incurred since its inception, which have taken BTC from being a niche technology to a mainstream investment asset that is being closely looked at by retail and institutional investors alike.

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In 2017, Bitcoin’s surge to highs of nearly $20,000 put the cryptocurrency on the world’s radar, and the ensuing crash served as a testament to the large volatility of the crypto, in spite of its promising use-cases and massive long-term potential.

This crash, which sent the cryptocurrency to lows of $3,200 in late-2018, left a bad taste in the mouths of many investors, and appeared to have confirmed the negative biases held by many economists and Bitcoin-bears who disdained the technology for a large number of reasons.

Despite this, over the past several weeks Bitcoin has posted a strong recovery that has allowed it to set fresh year-to-date highs around $8,300. This latest surge has shifted the market sentiment significantly and has led many investors to believe that the next bull trend is right around the corner.

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Despite Massive Price Volatility, BTC Has a Far Better Risk-Reward Ratio Than Most Traditional Assets

Recent research from cryptocurrency exchange Binance’s research arm puts a spotlight on just how profitable Bitcoin has been historically, as well as how the cryptocurrency’s volatility is justified by a high risk-reward ratio.

“Despite its perceived riskiness, Bitcoin $BTC has provided far higher returns than most traditional assets over the past 2 years based on the following risk indicators/ratios,” Binance Research explained in a recent tweet.

The charts in the tweet above elucidate some interesting statistics regarding the performance of BTC as compared to other major assets, showing that Bitcoin’s 2-year returns of nearly 400% far surpass that of tech stocks – 46% – and that of the aggregated US stock market – 30%.

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Moreover, while weighing the volatility of the various asset classes by using the Sortino Ratio – which is used to measure the positive volatility of an asset – Bitcoin has a positive measurement of 283%, while tech stocks have a positive ranking of 190% and the aggregated US stock market has a positive ranking of 136%.

When considering this data, it becomes apparent that Bitcoin is firmly in a long term uptrend, despite the bear market that has ensued since late-2017, and that it is likely to extend this upwards momentum as it continues to garner greater levels of adoption and incurs investments from more institutional groups.

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Author: Cole Petersen

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