Now that the Bitcoin Cash ETF has become a part of the investment pool for global asset allocators, it’s a good opportunity to retrospect on the recent history of the so-called “risk” associated with BTC in comparison to traditional equity indices, such as the S&P 500.
We are specifically addressing Market Risk, or Volatility-Adjusted Return, in this discussion.
It appears that BTC has significantly higher volatility than the S&P. Moreover, BTC has shown double or even triple the annual return in the past few years. Does this make BTC a more attractive buy-and-hold asset?
Comparison of BTC and SPY Volatility and Year-on-Year Returns (2018–2023)
The table above illustrates that entering at the optimal time could result in BTC providing a significantly higher return than SPY over the specified period. However, when considering volatility-adjusted returns (i.e., return divided by volatility), BTC’s superior performance is not as pronounced.
One might question the necessity of using Volatility-Adjusted Returns instead of simply comparing absolute returns. While the latter may have been sufficient previously, it is less so now that the Bitcoin Cash ETF is as accessible as the SPY (S&P 500 ETF).
As institutional asset allocators, our focus would be on volatility-adjusted returns. With a specific Return / Volatility profile, we could intelligently employ leverage to enhance volatility and, therefore, potentially increase returns. Consequently, a higher Return / Volatility ratio is desirable, all else being equal.
You now wonder if there are products to harvest this rich volatility to generating more sustainable yields on crypto assets.
The answer dVOL, its very purpose is to simplify yield generation from complicated options strategies. We will be launching a series of articles to introduce our products and its applications. Please stay tuned.
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