"Bitcoin is too volatile to be a store of value"

Discussion in 'Crypto Assets' started by Daal, Jun 1, 2021.

  1. Daal

    Daal

    Here is interesting stats, the vol of the S&P500 is 15%, 10y bonds 6%, BTC 87%

    The cVAR (expected shortfall or conditional value at risk) of BTC is -35%. The Max DD is -83%

    upload_2021-6-1_10-34-17.png

    So by these numbers, Bitcoin looks awful. However, I recall from back when I was a daytrader that short-term data can be very misleading. Often I would see traders post huge daily gain numbers and brag all over twitter "hey guys, I just made $15,000, I'm so fucking good", and then one day out of nowhere these guys would report gigantic losses, often in the hundreds of thousands of dollars. So I learned that what really mattered, was not the daily gains but the yearly final result. Often times the 15K a day guys were taking risks that needed time to be exposed and their yearly results would show that. Bitcoin in that way is similar, the short-term volatility and 30% down days are hiding the fact for long-term holders, you get paid very well for holding through that volatility

    upload_2021-6-1_10-43-58.png

    At a 5% allocation to BTC (a often recommended allocation to institutions), the max drawdown increased by a mere 1%, meanwhile return went from 10% to 14%. The net result was a return/volatility ratio going from 1.03 to 1.39. The 5% CVaR also rose very little.

    So when people say "Bitcoin is too volatile to be a store of value" they are drawing rules about stores of value that they made up. In their rule book, they need SHORT-TERM stability and they ignore long-term benefits. From all my portfolio backtests going back to 1900 in the US/UK and Brazil, I know this will lead for portfolios to be heavily invested in short-term fixed income. Because it provides that short-term stability. But that stability is an illusion because in the long-term you get destroyed during inflationary periods or periods of financial repression (and I can post the backtest data here if anyone is interested). So that short-term stability was hiding risks that only time exposed.

    Also, there is plenty of people that do not have that rule book, that is, they dont need restrict their store of values menu to only assets that have short-term stability. They can have assets with short-term volatility but LONG-TERM portfolio benefits (like improved risk-adjusted ratios), such as bitcoin. Its a big world is out there and there is plenty of disagreements, so when economists/journalists shout from the roof top 'bitcoin is too volatile to be a store of value' they need to consider that perhaps, the rules aren't as rigid as they make out to be. People have different ways to look at the world
     
    yc47ib, Sprout, Poljot and 3 others like this.
  2. Pekelo

    Pekelo

    If I were to invest in BTC (as opposed to short term trade it), or in any highly volatile asset, I would do either or both:

    1. Wait until a 40-50% pullback and start then.
    2. Dollar Cost Average.

    That way the huge fluctuations are mitigated up to a point.
     
    KCalhoun likes this.
  3. SteveM

    SteveM

    Past performance is not necessarily indicative of future results. Just saying.
     
  4. Daal

    Daal

    The statement 'Bitcoin is too volatile to be a SoV' is about past performance and it is not supported by the data
     
    Sprout and johnarb like this.
  5. maxinger

    maxinger

    big volatility is great for trading.
    the higher the better.


    Unfortunately, the bid-offer spread for bitcoin futures is extremely huge.
     
  6. I'm just going to leave this right here.

    [​IMG]

    This chart doesn't lie

    And if you think it's not a store of value because "There's nothing intrinsic about it man" then there is no hope for you. If you think this chart is anything but bullish then you are without a doubt, bullheaded. But I respect your decision of having a closed mind and not becoming wealthier.
    Because that just means more Bitcoin for me :cool:

    And if you think I am talking about you, then I probably am...
     
    johnarb likes this.
  7. Baron

    Baron ET Founder

    Awesome post. Very insightful to say the least. Great job! :thumbsup::thumbsup:
     
    johnarb likes this.
  8. [​IMG] upload_2021-6-1_14-41-43.jpeg
     
    Nobert likes this.
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  10. Last edited: Jun 1, 2021
    #10     Jun 1, 2021
    misterkel and themickey like this.