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Reggie Middleton

Reggie Middleton

Who am I? Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I…

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Is Bitcoin Too Risky? Whenever the Bitcoin is Mentioned in Financial Pop Media, Ignorance Ensues Featured

I hate to be the one to break bad news to you, but most of the pop media/mainstream media financial pundits that I hear and see opine on bitcoin have absolutely no idea what the hell they are talking about. This article will be the piece that strips the pretense of knowledge away from all of those other "smart guy" media types.

S&P500 and Bitcoin Sharpe ratios

So, the answer to the question "Is Bitcoin risky?" is yes. The problem is that to an investor - whether retail, professional or institutional - that is not the question to ask. Let me pose a better question for you - "What is the risk-adjusted return of bitcoin relative to other major asset classes?" What is that you say? You haven't seen that question asked very much in the media, TV or web? The reason is two fold. First, let's be frank, many of these dudes are really amateurs with opinions and a publishing platform. Second, many of the guys who really do know what they are talking about from a financial, investment or macro perspective, truly don't understand what bitcoin is. No, it is not a currency. It is not a commodity. It's a protocol based value and consensus-based information network. "B"itcoin is closer to the Internet than it is to a CFTC regulated commodity, even if the CFTC has regulated otherwise. "b"itcoin, the first and earliest application built upon said network is a digital currency application, but because of its modern and unique features (scripting, immutability, self-contained transportation rails, self-contained auditing features, P2P, full autonomy, etc.) it is so much more than what the old school gus are used to referring as "Currency".

Veritaseum

Here is a video that I made almost 3 years ago on how to describe bitcoin and why it wasn't a bubble back then - still applies now...

This can be taken very far, reference Pathogenic Finance...

So, armed with this new education, you must ponder "What's up with the financial media?" Let's take a look, shall we? 

Financial Times Bitcoin Article

But waitaminute! This dude didn't mention anything about networks, immutability, inherent transportation rails, programmability - anything! Could it be he really doesn't know what he's talking about? Armed with your possibly new found knowledge, I'll let you be the judge. Next up, Time's Money Magazine...Money article: Why You Ahouldn't Invest in Bitcoin

Waitaminute again! Is this guy measuring risk without reward? The answer is no. He's not even measuring risk, he's just noting fluctuations. I'll post this little homemade infographic to demonstrate how amateurish this attempt at an explanation is...

Excess returns: Bitcoin versus S&P500

Measuring risk without reward is meaningless. It's almost as meaningless as measuring reward without the risk taken to achieve it. Once you take an empirical (or more professional) view at bitcoin, you'll see that once adjusted for historical returns, bitcoin is actually less risky than the US stock market! Then there's that comment about there being no liquidity on the sell side. Hmmm....

Bitcoin Chart

Why don't the guys at Time Money and the Financial Times know this? Hey, it get's worse. Let's look at an article from some really smart guys. Remember what I said about smart sounding guys not knowing what the hell they are talking about? The London Business School (shame, shame, shame...):

Betting on Bitcoin is a Huge Risk

As you can see, this guy didn't do his high school math (yes, I teach my high school age son - 16 years old - this stuff). Let's plug the British pound into the Sharpe ratio machine to see how it looks....

Excess returns: Bitcoin versus S&P500 Chart 2

Whoah! Will you look at that. Even adjusted for the risk of volatility, Bitcoin turned out to give much more return per unit of risk assumed. Does that mean that the guys a the London Business School should give BoomBustBlog subscriptions to all of their students AND professors?

 


Subscribe to BoomBustblog. My analysts will be putting a more complete perspective of Bitcoin's risk adjusted performance against many of the more popular asset classes, and I will add my qualitative analysis to the mix for all paying subscribers.

Learn more about programmable bitcoin "smart contracts" at Veritaseum:
What is Veritaseum? A Layman's Explanation
The Onramp to Peer-to-Peer Capital Markets

 

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