A cryptofinance market is a market where cryptocurrencies are traded. The top ten cryptocurrencies by market capitalization are Bitcoin(BTC), Ethereum(ETH), Binance Coin(BNB), Tether(USDT), Solana(SOL), Cardano(ADA), U.S. Dollar Coin(USDC), XRP(XRP), Terra(LUNA), and Polkadot(DOT). The risk-return tradeoff of cryptocurrencies is different from that of stocks, currencies, and precious metals for the following reasons: (1) Cryptocurrencies are not exposed to most common stock market and macroeconomic factors; (2) Cryptocurrencies are not exposed to the returns of currencies and commodities; (3) Cryptocurrency returns can be predicted by factors that are unique to the cryptocurrency markets.The risks of holding cryptocurrencies are high because cryptocurrencies are highly volatile, intangible, exist on a non-regulated 24-hour market, and are uninsured by any authority. All these characteristics appeal to criminal and illegitimate purposes.
So, how do you measure the risks and returns in a cryptofinance market? Any suggestions will be very much appreciated in supporting my ongoing research in cryptocurrencies.
Hello Ako,
To effectively calculate risks and return, I will recommend you try your hands on GARCH model. Also, except you pay for API, you might not be able to calculate returns for all listed assets in a singular analysis (I stand to be corrected). I made that mistake recently.
Hope this helps. Cheers.
Hello Mohammed! Thank you for your input. Have you tested in your studies Normally Distributed GARCH models and Heavy-Tailed GARCH models also called GAS models? How these two models work in cryptocurrencies?
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