Evening Brief – 04.22.24
Crypto Vs TradFi
Between October 2023 and March 2024, the market cap of the cryptocurrency industry rose to $2.5 trillion from slightly above $1 trillion.
Bitcoin (BTC) and Ethereum (ETH) delivered higher absolute percentage returns during the study’s timeframe than all traditional financial indices (equities and fixed income alike), according to new crypto research.
Bybit, one of the world’s top three cryptocurrency exchanges by volume, collaborated with Treehouse, a research firm that provides insights into digital assets, to give a comprehensive examination of the current level of cryptocurrency adoption around the world compared with traditional finance (TradFi).
Despite being the blue chips of the crypto market, however, BTC and ETH continue to endure extreme volatility, according to Bybit and Treehouse’s 2024 Institutional Industry Report, with standard deviations of return much higher than those of traditional markets. According to the analysis, their volatility exceeds that of the Nasdaq-100 by 3.13 and 3.37 times, respectively.
However, if one concentrates just on the downside risk of daily returns, the volatilities decrease significantly in relative terms, with BTC and ETH having volatilities 2.73 and 2.84 times those of the Nasdaq-100, respectively.
“Despite their higher volatilities, BTC and ETH demonstrate superior risk-adjusted returns compared to all index benchmarks in the TradFi markets, the authors said. ”Even the DJIA only achieves roughly half of ETH’s Sharpe ratio, while BTC exceeds that of DJIA by more than 3.4 times.”
This disparity becomes more obvious when only negative risks are considered using the Sortino ratio, in which BTC and ETH outperform by 3.8 and 2.2 times, respectively.
VCs Deals on the Rise
The report also noted that venture capital investing in the cryptocurrency industry has experienced a strong rebound. In the fourth quarter of 2023, VC deal counts increased by 21% to 174 deals, with disclosed capital totaling $1.42 billion, a 29% increase. In the first quarter of 2024, there were 243 deals with disclosed funding totaling $1.94 billion, marking a 36% increase over the fourth quarter of last year.
Infrastructure projects continue to be the primary focus of venture capital investments, attracting significant funding to support the fundamental aspects of the blockchain ecosystem, including hardware wallets and blockchain data.
The crypto market appears to be rising from its protracted winter, aided by improved regulatory clarity and a considerable increase in institutional usage. This, together with the introduction of Bitcoin Spot ETFs and rising investor confidence, points to a promising future for digital assets, the report concluded.