June was an exciting month for cryptocurrencies. The price of Bitcoin, the first and largest cryptocurrency by market capitalization, crossed the $9000, $10000, and $11000 mark all in one month. Bitcoin last traded around the $11000 price level in March 2018 during the bear market that followed after peaking in December 2017. This year’s long bear market, dubbed by many as the “crypto winter” appears to be definitively over following cryptocurrency’s steady resurgence and the crossing of these major psychological thresholds by Bitcoin.
Bitcoin rose 44.41% in June 2019, and most other cryptocurrencies that we analyzed had positive returns as well.
Cryptocurrency Market Developments in June 2019
Various developments related to new cryptocurrencies and blockchain projects may be responsible for the bullishness surrounding cryptocurrencies this month. In particular, these projects are led by high-profile organizations, raising the interest and demand for cryptocurrencies in general, as well as legitimizing the cryptocurrency space to previously unconvinced market participants.
Global risks and uncertainties may also be making cryptocurrencies more popular as a safe haven.
Exhibit 1: Monthly returns of cryptocurrencies over the past year.
Best and Worst Performers
Performance of cryptocurrencies across two different time frames – June 2018 to June 2019, and only June 2019 – are presented below. Cryptocurrencies that had the highest total returns, lowest total returns, and highest Sharpe ratio are highlighted. In addition, other metrics such as rate of return, alpha, and beta (relative to the Bitwise 100) are shown all as daily, non-annualized values.
Exhibit 2: Cryptocurrencies with the highest total returns in June 2019.
- ChainLink (LINK) had the highest total return in June 2019.
- LINK is a decentralized data oracle designed to provide reliable real-world data inputs for smart contracts.
- Recent positive developments for the cryptocurrency in June include an article by Google Cloud titled ““Building hybrid blockchain/cloud applications with Ethereum and Google Cloud” that mentioned LINK, and a new listing on cryptocurrency exchange, CoinbasePro.
Exhibit 3: Cryptocurrencies with the lowest total returns in June 2019.
- Tezos (XTZ) had the lowest total return in June 2019.
- XTZ is a self-amending proof-of-work dApp platform with built-in mechanisms designed to remove the need to hard fork when implementing protocol amendments.
Exhibit 4: Cryptocurrencies with the highest total returns from June 2018 to June 2019.
- In addition to being the cryptocurrency with the highest total return in the past year, LINK also had the highest total return over the past year. LINK beat out the next best cryptocurrency, Binance Coin (BNB) by a huge order of magnitude.
- Bitcoin (BTC) was the third best performing cryptocurrency.
Exhibit 5: Cryptocurrencies with the lowest total returns from June 2018 to June 2019.
- Pundi X (NPXS) had the lowest total return in the past year.
- NPXS is a token used for payments and settlements. It is also integrated with their own physical point-of-sale devices.
Exhibit 6: Cryptocurrencies with the largest Sharpe Ratios in June 2019.
- HyperCash (HC) had the best performance relative to its risk in June 2019 as measured by the Sharpe ratio.
- HC belongs to an emerging class of cryptocurrencies called “sidechains” which facilitate the transfer of digital assets between other blockchains.
Exhibit 7: Cryptocurrencies with the largest Sharpe Ratios from June 2018 to June 2019.
- ChainLink (LINK) had the best performance relative to its risk in the past year as measured by the Sharpe ratio.
Risk vs. Return
Mean Daily Return vs. Daily Volatility
Exhibits 8 and 9 present the risk versus return trade-off by plotting mean daily return versus historical daily volatility for various cryptocurrencies. Higher returns at a given level of risk, measured through historical daily volatility, indicate a relatively better investment.
Exhibit 8: Plot of mean daily return against historical daily volatility for individual cryptocurrencies in June 2019.
- ChainLink (LINK) had both the highest mean return and volatility overall.
- The cluster of cryptocurrencies with close to 0% mean returns and volatility are stablecoins, including Tether (USDT), Paxos Standard Token (PAX), TrueUSD (TUSD), and USD Coin (USDC).
Exhibit 9: Plot of mean daily return against historical daily volatility for individual cryptocurrencies from June 2018 to June 2019.
- ChainLink (LINK) was identified earlier as having the best Sharpe ratio – here it can be visualized through LINK’s higher mean daily returns compared to other cryptocurrencies with a similar daily volatility.
Value Comparison using CAPM
Previously, we presented a comparison of risk versus return measured by the mean daily volatility and mean daily return, respectively. To build upon the idea of compensating investors sufficiently for a given level of risk, we apply the Capital Asset Pricing Model (CAPM) to determine what is the threshold required return for a cryptocurrency to be worth its risk.
We quantified the systematic risk of individual cryptocurrencies by calculating its beta over the past year. Higher positive betas indicate that the cryptocurrency is more volatile than the market, whereas negative betas indicate that the cryptocurrency moves against the market. The Bitwise 100 cryptocurrency index, a market capitalization weighted index of the top 100 cryptocurrencies, was used as a proxy for the market portfolio in beta calculations.
In Exhibit 10, we plotted individual cryptocurrencies’ beta versus expected return, which was calculated as the daily rate of return using data from June 2018 to June 2019, and assume that historic returns are a sufficiently good measure of future returns. In addition, using the risk-free rate and the expected returns of the Bitwise 100, we constructed a Security Market Line that represents the fair expected return that an investor should be compensated for a cryptocurrency with a given beta.
Using this model, cryptocurrencies above the Security Market Line are theoretically undervalued, and cryptocurrencies below the Security Market Line are overvalued.
Exhibit 10: Plot of the expected return against beta for individual cryptocurrencies and the Security Market Line, calculated with daily returns from June 2018 to June 2019.
- Chainlink (LINK) is theoretically the most underpriced and would provide the best value, with its high expected return relative to its systematic risk.
- Some other cryptocurrencies identified as being underpriced are Bitcoin SV (BSV), Binance Coin (BNB), Bitcoin (BTC), HyperCash (HC), Litecoin (LTC), Dogecoin (DOGE), and Basic Attention Token (BAT).
Exhibits 11 to 16 show the overall and rolling 30-day correlation from the past year of the top three cryptocurrencies by market capitalization, the S&P 500 and VIX indices, the Chinese Yuan (CNY) and gold prices.
Correlation measures the linear relationship between two series and can range between -1 and 1. More positive correlations indicate a stronger positive linear relationship while more negative correlations indicate a stronger negative linear relationship. A correlation of 0 or close to 0 indicates little to no linear relationship.
Exhibit 11: Correlation between BTC, XRP, ETH, VIX, S&P 500, CNY, and gold daily returns from June 2018 to June 2019.
- The top three cryptocurrencies by market capitalization, Bitcoin (BTC), Ether (ETH), and XRP (XRP), are highly positively correlated with each other.
- Cryptocurrencies and the S&P 500 are slightly positively correlated.
- Cryptocurrencies and VIX are slightly negatively correlated.
- Gold and Bitcoin (BTC), as well as Gold and Ether (ETH) are slightly negatively correlated.
- CNY has a stronger correlation with XRP (XRP) than with other cryptocurrencies, although it is still a relatively small number.
Exhibit 12: Rolling 30-day correlation between BTC, XRP, ETH daily returns.
- Correlations between the three pairs of cryptocurrencies examined rarely dipped below 0.5.
- In general, Bitcoin (BTC) and Ether (ETH) were usually more positively correlated than other pairs.
Exhibit 13: Rolling 30-day correlation between BTC, XRP, ETH daily returns and S&P500 daily returns.
Exhibit 14: Rolling 30-day correlation between BTC, XRP, ETH daily returns and VIX daily returns.
Exhibit 15: Rolling 30-day correlation between BTC, XRP, ETH daily returns and CNY daily returns.
Exhibit 16: Rolling 30-day correlation between BTC, XRP, ETH daily returns and gold daily returns.
Below is a complete list of all cryptocurrencies examined in this report as well as their symbol to full name mapping.
Below is a complete list of all cryptocurrencies examined in this market report. In addition, we present the mean, standard deviation (volatility), skewness, and kurtosis for each cryptocurrency’s daily returns from June 1, 2019 to June 30, 2019, and from June 30, 2018 to June 30, 2019.
For cryptocurrencies where data did not reach all the way back to June 30, 2019, statistics were calculated only using as much historical data as was available.
Below is a complete list of all cryptocurrencies examined in this market report. In addition, we present the mean daily returns, historical daily volatility, total returns, and ex-post Sharpe ratio for each cryptocurrency from June 1, 2019 to June 30, 2019, as well as from June 30, 2018 to June 30, 2019. Rate of return and Alpha are shown as daily, non-annualized values. Beta is calculated using the Bitwise 100 to represent the market portfolio.
Empty values in the Jun-2018 to Jun-2019 Total Return column indicate that data on the cryptocurrency from June 2018 was not available, hence that metric could not be calculated. Furthermore, for those cryptocurrencies, the remaining metrics were calculated only using as much historical data as was available.
Our universe of analysis includes 50 of some of the most widely used and traded cryptocurrencies. Cryptocurrencies were selected on the basis of being in the top 50 cryptocurrencies by market capitalization according to CoinMarketCap data where Coinscious also had USD pricing data.
The daily price data of cryptocurrencies in USD at 4:00 PM EST from June 30, 2018 to June 30, 2019 was used for our calculations.
The prices are the volume weighted average price of the cryptocurrency in USD at 4:00 PM EST each day across all exchanges where Coinscious has data. The only exception is Siacoin (SC), where we used the Yahoo Finance price instead due to data quality issues at the time of writing.
Daily closing price data of the S&P500 index and VIX volatility index was obtained from Yahoo Finance. Bitwise 100 index data was provided by Bitwise Asset Management. The 10-year US Treasury bill rate on June 30, 2018 from YCharts was used for calculations involving a risk-free rate. Chinese Yuan to US Dollar rates were obtained from FRED. Gold prices are the morning gold fixing prices in London at 10:30 am, also obtained from FRED.
The information contained herein is for informational purposes only and is not intended as a research report or investment advice. It should not be construed as Coinscious recommending investment in cryptocurrencies or other products or services, or as a solicitation to buy or sell any security or engage in a particular investment strategy. Investment in the crypto market entails substantial risk. Before acting on any information, you should consider whether it is suitable for your particular circumstances and consult all available material, and, if necessary, seek professional advice.
Coinscious and its partners, directors, shareholders and employees may have a position in entities referred to herein or may make purchases and/or sales from time to time, or they may act, or may have acted in the past, as an advisor to certain companies mentioned herein and may receive, or may have received, a remuneration for their services from those companies.
Neither Coinscious or its partners, directors, shareholders or employees shall be liable for any damage, expense or other loss that you may incur out of reliance on any information contained in this report. Chainlink
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