Top 50 cryptocurrencies’ volatility is ‘predictable’ and digital assets behave more like equities: Report

• March 9, 2023, 9:00AM EST

Authors of perhaps “the most exhaustive study” ever done on the volatility of cryptocurrencies say they can now more accurately predict the intense swings gripping the digital-asset market.

 The Risk Protocol — billed as a digital-assets investment platform — on Thursday released a 44-page report evaluating the volatility among the world’s 50 “largest” cryptocurrencies. Utilizing the insights gleaned, the company said it was able to create “sophisticated” statistical models that are “proven” to more accurately predict volatility.

The Risk Protocol Founder and CEO Karamvir Gosal says his company’s report can help investors and institutions alike hedge future risk, even during crypto’s recent downturn, which has been riddled with turmoil and crisis.

“Before participating meaningfully in the crypto sector, institutions rightly want to understand the risk involved,” he said. “The rigor of this analysis will help them in that regard.”

After a spectacular bull run, the digital-asset market has entered an era of severe instability. The current market has been made worse by a series of bankruptcies and liquidity crises and cooling crypto interest among individual investors and traditional institutions. The Risk Protocol’s report embraces the volatile nature of cryptocurrencies and by extensively evaluating the top 50, hopes to position itself as a resource of information and, eventually, a platform that investors will use to modulate risk.

Some of the report’s key takeaways:

  • Investors can’t “necessarily hedge long underlying crypto exposure by being long volatility.”
  • The fickle nature of crypto is “strongly predictable.”
  • Between 2020 and 2022 the “return correlation” became “positive” between Bitcoin and the Nasdaq Stock Market. Before 2019 there was “no significant correlation between” Bitcoin gains and “broader stock market returns.”

A veteran of traditional finance, Gosal said crypto has to be viewed through a different lens.

“Hedging that works in traditional finance might make things worse in crypto,” he said.

The report often compared digital assets to stocks, stating that the gain and loss asymmetry in cryptocurrencies is more “similar to broader equity markets” when compared to foreign exchange.

The Risk Protocol also asserted that the ebbs and flows of volatility are more intense depending on the time of the day or day in the week. It concluded that traders should buy when volatility shrinks.