Cryptocurrencies Show Signs of Maturing But Remain Too Risky
[NEWS BLOG]: Cryptocurrencies Show Signs of Maturing But Remain Too Risky
Bitcoin (BTC) presented historically low volatility this year, argues the Dec. 2019 SFOX report released on Jan. 8. Coupled with a lower correlation with altcoins, there are emerging signs that the market could start to behave in a more predictable way. However, the cryptocurrency asset class remains disproportionately risky compared to the stock market.
In its final monthly report for 2019, the analytics firm SFOX analyzed the yearly performance of Bitcoin and other cryptocurrencies.
Compared to traditional assets such as gold and stocks, Bitcoin held a remarkably low correlation index for the past six months. Its average 30-day correlation amounted to -0.037 for the S&P 500 and 0.149 for gold. In addition, the correlation between Bitcoin and altcoins dropped from highs of 0.7 to as low as 0.4.
Furthermore, Bitcoin’s volatility fell during the later stages of the year. While still remaining well above the corresponding values for traditional assets, cryptocurrency markets registered a relatively low level of volatility compared to 2018. BTC closed 2019 at 32.05 percent historical volatility, which was in the bottom 10 percent of its volatility range in the previous year.
Cryptoassets still disproportionately risky
BTC showed impressive year-over-year returns of 93.8 percent in 2019, compared to the S&P 500’s 29 percent and gold’s 52.8 percent. But while the lower volatility may point to a gradual increase in market maturity, the risk is still outsized compared to the rewards.
The Sharpe ratio, a risk-reward measure that compares an asset’s returns with its volatility, was significantly higher for the S&P 500. The ratio’s value for BTC amounted to 1.74 in 2019, while the leading stock market clocked in at 2.54. This means that traditional markets, despite their significantly lower returns, were statistically a more profitable investment than cryptocurrencies.
It is unknown whether these trends will persist in 2020. SFOX identified the upcoming Bitcoin halving and introduction of options contracts as potential positive drivers. Conversely, the recent Youtube content ban may be a sign of upcoming pressure from tech companies.
OTHER RELATED NEWS
Crypto Tidbits: Bitcoin Explodes Past $11k, Ethereum 2.0 Nears, Cardano’s Shelley Launches
Bitcoin’s recent price action comes as a breath of fresh air for crypto traders, which had to deal with BTC flatlining in the $9,000s for around two and a half months. The leading crypto asset is attempting to pass the local highs of $11,500 as this article is being written.
Despite the strength of the breakout, Bitcoin’s macro volatility indicators remain at historically low levels. This may suggest, according to Bitazu Capital’s Mohit Sorout, that BTC has room to rally to the upside as ongoing volatility seems to be favoring bulls.
This latest rally in the crypto market has brought - read more.
Biggest Crypto Price Movements of 2019 - FOR XRP
The start of 2020 is a great time to look at the path travelled by cryptocurrencies up and down the price charts and analyze how these coins have been performing throughout the previous year. The prices of most cryptocurrencies changed tremendously throughout 2019, as the year started off slow but then saw most cryptocurrencies jump in value over the first six months.
However, some like Luna Coin (LUNA) exhibiting a considerable growth of 48,900%. Others, such as Lumen (XLM), lost more than half their price value and tumbled from the pedestal of crypto glory. DogeCoin (DOGE) demonstrated the lowest volatility, which is entering 2020 - read more.
Iranian Conflict a Successful Beta Test for Bitcoin as Wartime Safe Haven
Bitcoin’s primary use-case is continuously evolving. At first, many thought the cryptocurrency would be the next generation payment method. Scaling issues and extreme volatility deterred many merchants from accepting BTC.
At that point, critics thought that the virtual currency would die. But, the number one crypto proved to be resilient as its value proposition changed into a store of value and as the only non-correlated asset in the world. In the last week, bitcoin’s use-case is making another transformation.
An analyst tracked bitcoin’s performance as the turmoil in Iran escalated. It appears that one of the surprising consequences of geopolitical risk - read more.