Yale Economist Aleh Tsyvinski recently published a report in the National Bureau of Economic Research (NBER) that reviewed three digital assets — Bitcoin, Ethereum and XRP — in an effort to identify their basic properties and compare them to other asset classes.
As part of his study, Tsyvinski compared Sharpe ratios, a measure that indicates the average return minus the risk-free return divided by the standard deviation of return on an investment, between digital currencies and other asset classes. Surprisingly, Tsyvinski found that the Sharpe ratio for cryptocurrencies is slightly higher than for stocks and bonds, meaning the commonly referenced volatility should not dissuade the investor interest.
While this study was undoubtedly impactful in helping dissuade the overly-prevalent thinking that returns on digital assets are inherently more volatile than other asset classes, it did little to compare the relative volatility between notable cryptocurrencies and the overall market.
In order to begin to better analyze price volatility and risk within the cryptocurrency industry, we looked at data only recently available as crypto benchmark indices develop. For this report, we analyzed the beta, a measure of the volatility of a cryptocurrency, as compared to the AltDex 100 Index (ALT100), a benchmark index for large-cap cryptocurrencies and tokens.