A New Study Suggests Bitcoin Investment May Not Be As Risky As It Seems: Binance Research
Many investors use a risk/reward ratio to compare the expected returns of an investment with the amount of risk they must undertake to earn these returns.
Traders often use this approach to plan which trades to take, and the ratio is calculated by dividing the amount a trader stands to lose if the price of an asset moves in an unexpected direction (the risk) by the amount of profit the trader expects to have made when the position is closed (the reward). The risk/reward ratio is often used as a measure when trading individual stocks.
According to data compiled by PlanB, a leading Bitcoin zealot & crusader, a mere 1% into BTC and 99% cash portfolio beat the S&P 500 over the last ten years — widely deemed the index’s most prominent bull run in history.
While the former out beat out the latter by a mere margin (a few % at best), the fact remains that in PlanB’s eyes, BTC has a better risk/return ratio, even though the cryptocurrency has been through drastic downturns multiple times.
1% #bitcoin + 99% cash allocation beats S&P500 over last 10 years:
– higher return
– lower risk (!)
– better risk/return, raroc etc
– including: 3x bitcoin "crash" -80% (2011, 2014, 2017)
– note: last 10 yrs was great for S&P500 (no -40% like 2002, 2008)#asymmetricbet #arbitrage pic.twitter.com/WQc1kt3RWO
— PlanB (@100trillionUSD) January 21, 2019
Now Binance’s new study suggests the same.
Despite its perceived riskiness, Bitcoin $BTC has provided far higher returns than most traditional assets over the past 2 years based on the following risk indicators/ratios. pic.twitter.com/yXVKpcNvTO
— Binance Research (@BinanceResearch) May 15, 2019
They say: “Despite its perceived riskiness, Bitcoin $BTC has provided far higher returns than most traditional assets over the past 2 years based on the following risk indicators/ratios.”
In the charts shared by Binance, it can be seen that Bitcoin’s return for 2-years returns of nearly 400% far surpasses that of tech stocks (46%) and that of the aggregated US stock market (30%).
Additionally, while looking at the Sortino ratio, Bitcoin has a measurement of 283%, while tech stocks have it at 190%. The average US stock market is at 136%. The Sortino ratio takes an asset or portfolio's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation.