Contrary to popular belief, crypto stocks are not a safer option than Bitcoin and Ethereum
The volatility of the cryptocurrency market was an argument against digital assets because it puts more risk on the shoulders of investors. Therefore, it should be avoided. But according to the most recent data from InTheBlockthe two biggest cryptocurrencies, Bitcoin and Ethereum, are less volatile and more profitable than some stocks.
IntoTheBlock analysts have created an automated tool to calculate the Sharpe ratio, a value that helps investors assess risk and reward. The ratio is calculated based on past performance of the portfolio. The high ratio is generally considered a good sign of the risk/reward distribution.
The Sharpe ratio considers returns versus price volatility. Here most crypto companies match or underperform BTC pic.twitter.com/sV0QSsCR6J
— IntoTheBlock (@intotheblock) April 15, 2022
According to the analysis provided by the experts at the analytics firm, Bitcoin and Ethereum showed less volatility compared to many stocks, especially stocks of crypto-related companies like Coinbase.
As the chart suggests, the Sharpe ratio for Bitcoin remains at -0.02 while the same ratio for Ethereum is at 0.04. Stocks, on the other hand, show lower or similar performance with digital assets, contrary to popular belief.
Since the formula allows us to determine the asset’s returns relative to its volatility, most cryptocurrency-related companies match or underperform against Bitcoin and Ethereum, showing that the exposure to the cryptocurrency market via crypto-related stocks can actually be riskier than going live. purchase of digital assets.
Although the belief in the high volatility of cryptocurrencies has always existed, it may soon no longer apply to cryptocurrencies, as the average volatility of assets such as Bitcoin and Ethereum is declining rapidly compared to previous years.
Over the past three months, Bitcoin’s implied volatility hit a new low of 65%, suggesting that traders are unhappy with the near-term performance of the premier cryptocurrency and prefer to avoid active trading.