Analyzing rolling returns

The recent market has many people in a panic. And rightly so – at times, it’s been a stomach-drop inducing rollercoaster. It’s times like this that it’s important to take a step back and return to rational evaluation.

Mr. Market is driven by the inherent human emotions of fear and greed; investors are constantly entering and exiting traditional asset classes. However, it has been widely shown that, over time, a broad market index like the S&P 500 makes for a very good investment. The same analysis applied to bitcoin suggests similar findings. The following chart depicts a variation of rolling returns. Rolling returns look at set time periods (e.g. six-months, two-years)- beginning anew each month over the historical time frame selected. Depicted below are the average returns for various periods of time whereby returns are marked on the last day of the month.

Raw data sourced from coinmetrics.io

Such analysis suggests that if bitcoin is held for a period of 2 years, there is an 86% likelihood that an investor will have a positive return. Bitcoin is one of the most volatile assets that an investor can gain exposure to, however the longer your time horizon, the more volatility gets hedged out.

Furthermore, rolling returns can provide insight into how the market performs over both good and bad times.

Raw data sourced from coinmetrics.io

Although bitcoin suffers from extremely large drawdowns, the upside can be astronomical. Such positive returns did coincide with the stock market’s biggest bull run in history and could be spurred by the search for yield under a prolonged period of quantitative easing. Additionally, note that this analysis is based on limited data points because of the relatively short lifespan of bitcoin to-date. Although the longest standing digital asset – bitcoin is only ten years old, celebrating its tenth birthday on Oct. 31 last year.

The crypto layoffs continue

‘Staff adjustments’ are underway at several flagship crypto companies. Bitmain is the latest company caught in the crossfire, cutting all non-essential business units. Reports in China have indicated that Bitmain layoffs are likely to be as high as 85%. Furthermore, there is rampant speculation that Bitmain’s Jihan Wu and Ketuan Zhan are both to step down from their head positions at the company. This news follows reports that many other prominent crypto companies are downsizing; Consensys is streamlining its business and reducing headcount of its 1000+ employees and Shapeshift and Blockfolio have recently announced staff layoffs amidst the crypto winter.

In the News

An informative thread on how to navigate crypto-tax in New Zealand.

Ethereum Classic ($ETC) was 51% attacked. Markets basically ignored the event; ETC only dipped 7% after getting attacked. Full explanation of the consequences of a 51% attack on this thread.

The Giles Juanes Yellow Vests protests in France hit headlines this week. The movement’s latest demonstration called on supporters to withdraw their savings from financial institutions on January 12.

Crypto index fund provider Bitwise has applied with the SEC to offer a new Bitcoin ETF. According to the registration filing, the product plans to track the Bitwise Bitcoin Total Return Index, which tracks BTC prices across multiple exchanges. Bitwise would require physical Bitcoin to be held with regulated third-party custodians.

Sweden’s central bank predicts that the nation will “probably become cashless in 3-5 years.

As always, thanks for joining – see you next week for Rehashed.

Freddie Archibald

View previous issue: Rehashed – #35 Crypto Market Cycles: Revisiting the Fundamentals


About the author:

Capital markets to crypto convert. From Christchurch →  Boston → New York, Freddie became intrigued by the potential of the digital asset economy after plucking a book on Bitcoin off a New York library bookshelf in 2016. Her parents are thrilled that she is chasing magic money on the internet.

Disclaimer:  The above references an opinion and is for informational purposes only. The opinions expressed by the author do not represent the opinion of BitPrime.

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