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Author: Admin | 2025-04-28
As institutional investors evaluate crypto assets, how can they think about properly assessing their risks, especially in the context of a broader, multi-asset class portfolio? The chart below speaks volumes to the spectacular rise in cryptocurrency investing. Bitcoin has surged nearly 40,000%1 (that is not a typo) since April of 2013, for an annualized return of approximately 110%.2 It has not been a smooth ride—that return has come with an annualized volatility of 81%, but the risk-adjusted returns were still very attractive (Bitcoin’s annualized Sharpe ratio was ~1.3 over this period).Bitcoin trading volumes have increased meaningfully during the pandemic. In January 2021, Cointelegraph reported that volume in the Bitcoin market doubled, smashing previous all-time records.3 In fact, Bitcoin’s five-day average daily trading volume as of April 18th was approximately $77B,4 roughly 70% of the NASDAQ’s five-day average volume.5The incredible price appreciation (leading to bandwagon and “fear of missing out” effects), massive government stimulus, and people around the world spending more time at home and in front of screens have certainly contributed to Bitcoin’s meteoric rise, especially among retail investors. Increasingly, institutional investors are entering the crypto space, with managers like Skybridge,6 Blackrock,7 and Tudor8 announcing the addition of crypto to their investment universes or even the launch of crypto-dedicated funds. In fact, PWC estimates that crypto hedge fund assets increased 100% from $1 to $2 billion in 2019, and it seems like it’s only increasing from there.9As institutional investors evaluate crypto assets, how can they think about properly assessing their risks, especially in the context of a broader, multi-asset class portfolio? In this Street View, we will seek to answer this question. We explore how traditional financial risk factor models can potentially explain the risk of the largest crypto asset, Bitcoin. We then seek to understand the extent to which
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