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With bitcoin’s correlation to the NASDAQ still over 70% , we perform a similar analysis for bitcoin – the most mature cryptocurrency with the longest price history.
However, its volatility has settled at a median annualised value of around 64% since 2020 .
This scenario is obviously very punchy given the Sharpe ratio is driven by high returns during the earlier days of bitcoin, so it is less likely.
Were this performance to continue, it would imply a CAGR of 124%, which would lead to a price of $106,000 in a year and a staggering $536,000 in three years.
Bitcoin became more mainstream after the bull run in 2017. From 2018 onward, its Sharpe ratio has been around 0.52.
Since bitcoin has been highly correlated to the NASDAQ recently, our final scenario is tracking the implied returns if bitcoin followed the NASDAQ’s Sharpe ratio since 1990, which is around 0.4.
We view this as bullish as it suggests more investors are opting to hold coins in cold storage instead of in a liquid capacity on an exchange where it is easier to sell.
Longer term, the 30-day change in the exchange balance reveals fluctuations in the supply held on exchanges month on month.
Extending this to the last 30 days, 22 days have seen positive funding against eight negatives.
That some older hands have distributed coins to realise profits is somewhat expected given prices have rallied, but there is still a conviction to hold for most of the coin supply.
Consequently, if the trust trades at a premium to BTC prices, it may imply ‘excess’ demand from institutions, but ‘excess’ supply if it trades at a discount.
Conversely, holding it in liquid form would suggest investors are bearish, as they prefer being able to sell easily.
Exchanges set funding rates to prevent a lasting divergence in the price of the futures contract and the underlying since perpetual contracts have no expiry date so never settle in the traditional sense.
We can categorise HODLers by the length of time they have held BTC.
The reluctance of investors to sell and realise a profit may be because they believe the price will increase further, which would be bullish.
A measure of the complexity of the problems and so the computing performance required to solve them is the hash rate.