Contrary to popular belief, crypto stocks are not safer option compared to Bitcoin and Ethereum
The volatility of the cryptocurrency market was an argument against digital assets because it puts more risk on the shoulders of investors. Therefore, it should be avoided. But according to the most recent data from InTheBlockthe two biggest cryptocurrencies, Bitcoin and Ethereum, are less volatile and more profitable than some stocks.
IntoTheBlock analysts created an automated tool for calculating the Sharpe ratio—a value that helps investors to evaluate risks and rewards. The ratio is calculated based on the portfolio’s past performance. The high ratio is usually considered a good sign of risk/reward distribution.
According to the analysis provided by the experts at the analytics firm, Bitcoin and Ethereum showed less volatility compared to many stocks, especially stocks of crypto-related companies like Coinbase.
As the chart suggests, the Sharpe ratio for Bitcoin stays at -0.02 while the same ratio for Ethereum is at 0.04. Stocks, on the other hand, show worse or similar performance with digital assets, in contrary to popular belief.
Since the formula allows us to determine the asset’s returns relative to its volatility, most cryptocurrency-related companies match or underperform against Bitcoin and Ethereum, showing that the exposure to the cryptocurrency market via crypto-related stocks can actually be riskier than going live. purchase of digital assets.
While belief in the high volatility of cryptocurrencies has always been around, it may soon be non-applicable to cryptocurrencies, as the average volatility for assets like Bitcoin and Ethereum is rapidly dropping compared to previous years.
Over the past three months, Bitcoin’s implied volatility hit a new low of 65%, suggesting that traders are unhappy with the near-term performance of the premier cryptocurrency and prefer to avoid active trading.
