BITCOIN: Liquid Coin Returns and Correlation Analysis


It's nice to have good data, and for this section we partnered with BITA, which is an digital asset index provider and crypto data company. They gave us granular daily information for over 200 coins, which allowed us to do work thinking about coin returns. There are too many charts to pull in, so just see below an amazing visualization of raw returns since the start of 2017. It looks like a Monte Carlo simulation, but it's on a log scale up to 1 million percent!!! That's incredible, and suggests exponential growth. But of course that growth normalizes in 2018, though it's volatility and range is still an order of magnitude more than that of traditional equities.

One of the first things we did is run a correlation analysis between the top 15 assets, and then between those assets and traditional asset classes. You can see the matrix below, and the caveat is that there is not nearly enough of a time series yet to have statistically meaningful results. 2017 and 2018 will look different. But some preliminary conclusions are interesting. First, all the coins are correlated to each other, with some separation starting for EOS, TRX and VEN. We think these are short term and idiosyncratic differences associated with fundraising. And when looking at traditional asset classes, it's a real surprise. Crypto is very correlated with all traditional asset classes, from Equities to Gold to Commodities -- there goes your main thesis! The only thing it shows separation from are Fixed Income and Real Estate. As for onchain metrics, don't even get us started.


Last point to make is that we also look into the economic path from ICO to liquid coin, and how likely somebody is to make a good investment decision along the way. Token investing is really early stage tech investing, and must passes through various filters: financing (65% fail), operating failure (50-70% fail), as well as its own scam filter (20% scams, 0.5% hacks). On top of that, ICO selection is a hard game to win -- 60% of ICOs underperform Bitcoin and Ether, and 34% of ICOs led to the loss of half of the investment already, with those trends getting tougher not easier. So definitely buyer beware!