The volatility of the bitcoin market was used against digital assets, since it increased investment risk. As a result, it is to be avoided. However, new data from IntoTheBlock indicates that the two largest cryptocurrencies, Bitcoin and Ethereum, are less volatile and more rewarding than certain equities.
Analysts at IntoTheBlock developed an automated technique for computing the Sharpe ratio—a metric that assists investors in weighing risks and rewards. The ratio is determined by the portfolio’s historical performance. A high ratio is often seen as a positive indicator of risk/reward distribution.
According to the study supplied by the analytical organisation, both Bitcoin and Ethereum had less volatility than a variety of equities, particularly those of cryptocurrency-related firms such as Coinbase.
As the data indicates, Bitcoin’s Sharpe ratio is at -0.02, while Ethereum’s is at 0.04. Contrary to common assumption, stocks outperform or are comparable to digital assets.
Due to the formula’s ability to determine an asset’s return in relation to its volatility, the majority of cryptocurrency-related companies are either equal to or underperform Bitcoin and Ethereum, indicating that exposure to the cryptocurrency market via crypto-related stocks may be riskier than direct ownership of digital assets.
While the idea in cryptocurrency’s high volatility has always existed, it may soon become irrelevant, since the average volatility of assets such as Bitcoin and Ethereum is gradually declining in comparison to prior years.
Bitcoin’s implied volatility has fallen to a new low of 65% in the previous three months, indicating that traders are dissatisfied with the first cryptocurrency’s short-term performance and prefer to avoid aggressive trading.