Buying ‘Ethereum Beta’ Altcoins Is A Recipe For Disaster, Researcher Finds
2024年7月19日 - 5:00PM
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In a research report released on July 18, 2024, Thor Hartvigsen, a
crypto researcher, strongly cautioned against the investment
strategy of purchasing high-beta altcoins within the Ethereum
ecosystem as a leveraged tactic, particularly with the forthcoming
launch of the spot Ethereum ETFs in the United States. Hartvigsen’s
analysis titled “ETH Beta – a Recipe for Disaster?” provides an
analysis of whether buying ETH-correlated altcoins, commonly
referred to as ‘ETH betas,’ constitutes a good investment strategy.
These assets, including tokens like OP, ARB, MANTA, MNT, METIS,
GNO, CANTO, IMX, STRK (all L2’s), MKR, AAVE, SNX, FXS, LDO, PENDLE,
ENS, LINK (all DeFi) PEPE, DOGE (all memes), SOL, AVAX, BNB and TON
(alternative L1’s) are traditionally viewed as offering leveraged
exposure to movements in Ethereum’s price, assuming a higher
volatility relative to Ethereum itself. The report dissects several
critical areas: price performance comparison between these altcoins
and Ethereum, their correlation and beta coefficients relative to
Ethereum, and their risk-adjusted returns measured by the Sharpe
ratio. The researcher highlights the inherent risks and
inefficiencies in banking on these altcoins for enhanced Ethereum
exposure. Why Buying ‘Ethereum Beta’ Altcoins Is Generally A Bad
Idea Discussing price performance, Hartvigsen points out, “The
TOTAL3 (altcoin market cap) against the ETH market cap is at around
1.48. Since 2020, this chart has only been this low on a few rare
occasions, signaling the outperformance of ETH against most alts.”
This historical context sets a grim precedent for those hoping for
altcoin outperformance concurrent with Ethereum’s growth. The
researcher elaborates that despite periodic recoveries at these
levels, the overarching trend has been one of decline—a troubling
signal for altcoin investors. Related Reading: Bitwise CIO Bullish
On Ethereum ETFs Fueling Surge To Record Highs Above $5,000
“Notably, not a single L2 token has outperformed ETH YTD, with the
best performing token, GNO, up 34%, whereas ETH has seen a 44%
gain. Worst performers include MANTA, STRK, and CANTO, all down
more than 60% this year,” Hartvigsen stated. With regard to the top
alternative L1’s, AVAX is the only one down on the year vs ETH. “Of
the 8 DeFi tokens in this basket, 3 have outperformed ETH, namely
PENDLE (+254%), ENS (+163%) and MKR (+78%). The remaining 5 are all
down on the year with FXS as the worst performer down 73%,” the
researcher added. Meanwhile, memecoins have been the best bet this
year so far. “This can also be seen in the performance of the
largest Ethereum-native memecoins. PEPE is the largest gainer of
the sample, up +708% while SHIB is up 74% and DOGE 31%,” according
to Hartvigsen. The correlation section of the report digs deeper
into the relationship these altcoins have with Ethereum. “The
sample of altcoins has not been chosen at random but consists of
tokens usually assumed to be correlated with the performance of
ETH,” Hartvigsen explains. Related Reading: Trading Guru Sees
Bullish Future for Ethereum, Targets $5,600 in Latest Analysis He
further notes that “Correlation between ETH and ETH is obviously
perfect and therefore is 100%. The alts most correlated with ETH
are GNO, SNX, METIS, AAVE, and ARB.” However, despite some tokens
showing a decent correlation with Ethereum, the researcher cautions
that these do not necessarily guarantee similar performance
outcomes, especially in this crypto cycle. In terms of beta, which
measures the volatility of an asset compared to the market, the
findings are telling. “From this analysis, it’s clear that only a
few alts have a high beta coefficient in relation to ETH, namely
PEPE, METIS, ENS, and PENDLE,” Hartvigsen states. This suggests
that while certain altcoins exhibit higher volatility and thus
potential for greater returns relative to Ethereum, they also carry
a proportionately higher risk. The calculation of the Sharpe ratio,
which provides a measure of risk-adjusted return, brings another
dimension to the analysis. Hartvigsen remarks, “The Sharpe ratio
calculations underscore the volatility-adjusted returns of these
altcoins, which have varied significantly. This is critical as
investors often overlook the increased risk these ‘ETH beta’ assets
carry.” Wrapping up his findings, Hartvigsen offers a clear
verdict: “Buying these altcoins as a way to get leveraged exposure
to Ethereum is, in my opinion, a foolish game as you’re taking on a
lot of additional risk you might not be aware of. If you’re looking
for leveraged ETH exposure, simply putting on a 2x ETH long on
e.g., Aave is more sensible.” He emphasizes that such a strategy
ensures a 100% correlation and a beta value of 2, without the
unnecessary complications. At press time, ETH traded at $3,439.
Featured image created with DALL·E, chart from TradingView.com
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