With $4.5 trillion under management, Fidelity asserts: Bitcoin's risk-reward is in 'another galaxy.' Recently, Jurrien Timmer, Fidelity's Director of Global Macro, released an analysis of risk and reward for various assets, including Bitcoin (BTC).
According to Timmer, the risk-reward of Bitcoin is in 'a league of its own,' as reported by Bitcoin Magazine on their Twitter account.
In the realm of financial institutions, assessing the risk and reward of financial assets involves comparing annual volatility and annual return. Annual return represents the average gains an investment generates each year over a specific period. Higher annual returns suggest greater long-term profitability.
On the other hand, annualized volatility measures price fluctuations of an asset over a year, serving as an indicator of investment risk. Higher volatility indicates more intense price swings and, consequently, a greater potential for gain or loss. Additionally, analysts often evaluate volatility using standard deviations. A more significant standard deviation points to higher volatility, and vice versa.
What Is Bitcoin's Annualized Risk-Reward Compared to Other Assets?
When evaluating Bitcoin as an investment, it becomes apparent that, on average, it has an annual profit potential of around 60%. However, it's also worth noting that the price of Bitcoin can fluctuate significantly, as measured by a standard deviation of 69, indicating substantial ups and downs.
In a specific analysis conducted by Fidelity, spanning from 2020 to October 29, 2023, various financial assets are plotted on a two-axis graph:
Risk vs. Return: 2020-2023, weekly data. Source: Fidelity Investments
Interestingly, the second-best performing asset is the SPX in the stock market, with returns ranging from 16% to 26% and a risk level between 18 and 24 standard deviations. China presents the second-highest risk, with an annualized volatility ranging from 25 to 28, all while accruing negative returns over the 3-year period.