- Ethereum is up 239% year-to-date
- Our machine learning model forecasts a further 77% extension over the next 6 months
- Volatility is expected to increase going into 2022 with retracements up to 62% being likely
Source: Coinmarketcap, Tellimer Research
Ethereum enthusiasm is being fueled by the rapid growth in Defi (Decentralised Finance) protocols, which leverage the Ethereum blockchain. This has a direct effect on the number of daily transactions on the Ethereum blockchain.
Both Ethereum and Bitcoin have had a pretty staggering performance thus far this year, with Bitcoin up 89% year-to-date vs an exceptional 239% for Ethereum.
Despite making new highs, Ethereum volatility has dropped substantially this month, but is still 10% more volatile than Bitcoin (4.7% vs 4.3%). An increase in volatility is expected going into 2022, but this could coincide with a further price appreciation.
3-month rolling volatility
Volatility can be an investor's best friend
Crypto has proven that high volatility and ultimately huge drawdowns can set the scene for outperformance over the long run, and not just on an absolute basis but also on the risk-adjusted basis too. This goes against the basic premise of the efficient frontier in modern portfolio theory.
History is littered with such examples, but Amazon is a "prime" example, dropping 95% between 2000-2001 only to become one of the best returning equities of all time, with it up over 60,000% from those lows, today.
It seems to be a similar story with Ethereum vs Bitcoin, with Ethereum leveraging its increased volatility to enhance absolute returns and still managing to keep its rolling yearly Sharpe ratio above Bitcoin's.
Rolling 12-month Sharpe ratio
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This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...