This post is a little off topic, but I still think it has interesting implications for the price of (some) cryptocurrencies. The link is to an academic paper that examines the benefits of adding bitcoin to a portfolio of assets:
What’s striking is that bitcoin has a very high Sharpe Ratio. This is a very important financial ratio, because it adjusts the returns of an asset for its riskiness - in essence, it’s ‘easier’ to get higher returns if you buy a more volatile asset, but you should be adjusting those returns for the extra risk you’re taking:
In finance, the Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk (and is a deviation risk measure), named after William F. Sharpe.
Back to the article. If portfolios are optimized for the highest Sharpe Ratios then the allocations to bitcoin are off the charts. Here’s a portfolio that doesn’t use leverage. The optimal allocation is 98% bitcoin, 2% gold:
And here’s the portfolio that does use leverage. The optimal allocation is 3.45X bitcoin vs 2.5X short bonds:
Perhaps the people here with what seems on the surface to be irresponsibly high allocations to Maidsafe coin have actually made the smartest decision!