As a seasoned crypto investor with a few years under my belt, I’ve learned the hard way that not all investments in altcoins are created equal. Thor Hartvigsen’s latest research report on Ethereum-correlated altcoins, or ‘ETH betas,’ serves as a stark reminder of this lesson.
On July 18, 2024, Thor Hartvigsen, a cryptocurrency researcher, issued a warning in a research report against using a high-risk investment strategy involving the purchase of altcoins with elevated betas within the Ethereum network as a means to amplify gains. This caution is especially relevant given the upcoming launch of spot Ethereum Exchange-Traded Funds (ETFs) in the US market.
Hartvigsen’s article “ETH Beta: A Potential Risky Bet?” examines the merit of investing in ETH-linked altcoins, also known as “ETH betas.” This collection of assets includes tokens such as OP, ARB, MANTA, MNT, METIS, GNO, CANTO, IMX, STRK (Layer 2s), MKR, AAVE, SNX, FXS, LDO, PENDLE, ENS, LINK (DeFi projects), PEPE, DOGE (meme coins), SOL, AVAX, BNB, and TON (alternative blockchains). These assets are typically perceived to offer amplified exposure to Ethereum’s price fluctuations, with a higher degree of volatility compared to Ethereum itself.
The report provides an in-depth analysis of various crucial aspects: it compares the price performance of these altcoins against Ethereum, calculates their correlation and beta values in relation to Ethereum, and evaluates their risk-adjusted yields using the Sharpe ratio. The researcher underscores the potential risks and limitations associated with relying on these altcoins as a means to amplify Ethereum’s exposure.
Why Buying ‘Ethereum Beta’ Altcoins Is Generally A Bad Idea
Researcher Hartvigsen notes that the market capitalization of altcoins (TOTAL3) in relation to Ethereum’s (ETH) has been around 1.48 recently. He explains that this ratio has only been lower on a few occasions since 2020, indicating Ethereum’s outperformance against most other cryptocurrencies during this period. This historical context suggests a challenging situation for investors hoping for strong altcoin growth alongside Ethereum’s development. Hartvigsen further highlights that despite brief recoveries at these levels, the overall trend has shown a downward trend, which is a concerning sign for altcoin investors.
PENDLE with an impressive 254% increase, ENS with a gain of 163%, and MKR with a 78% rise. The remaining five tokens are all down on the year, with FXS being the poorest performer, losing 73%.
During the current year, memecoins have emerged as a profitable investment option. This is evident in the impressive gains made by the leading Ethereum-based memecoins. For instance, PEPE has surged by an astounding 708%, SHIB has experienced a growth of 74%, and DOGE has seen a rise of 31%. (Hartvigsen’s findings)
In the correlation segment of the report, we delve deeper into how the selected altcoins are connected to Ethereum. Hartvigsen clarifies that this specific grouping of altcoins was not chosen at random but rather includes tokens commonly presumed to mirror Ethereum’s price trends.
The researcher points out that that the connection between Ethereum (ETH) and certain altcoins, such as GNO, SNX, METIS, AAVE, and ARB, is very strong. However, he stresses that a high correlation does not automatically mean identical results, particularly during this volatile crypto market period.
As a researcher studying the beta coefficients of various altcoins in relation to Ethereum, I’ve discovered some intriguing insights. Based on my analysis, PEPE, METIS, ENS, and PENDLE stand out as having significantly higher beta values compared to Ethereum. This implies that these altcoins display greater volatility than Ethereum, which could potentially lead to larger returns. However, it’s essential to keep in mind that the increased volatility also brings with it a heightened risk.
The calculation of the Sharpe ratio adds a new perspective to our analysis by measuring the risk-adjusted returns of these altcoins. Hartvigsen points out that this metric emphasizes the volatility-adjusted yields of these ‘ETH equivalent’ assets, which can greatly differ. This emphasis is important as investors tend to disregard the heightened risks associated with these cryptocurrencies.
In summary, Hartvigsen’s perspective is straightforward: Instead of purchasing altcoins to gain leveraged access to Ethereum, he advises a more prudent approach. He suggests utilizing a 2x ETH long position on platforms like Aave instead. This method ensures a perfect correlation with Ethereum and amplifies gains by a factor of two, without introducing unnecessary risks or complexities.
At press time, ETH traded at $3,439.
Read More
- CORE PREDICTION. CORE cryptocurrency
- Top gainers and losers
- SYS PREDICTION. SYS cryptocurrency
- KUNCI PREDICTION. KUNCI cryptocurrency
- BTC PREDICTION. BTC cryptocurrency
- CFG PREDICTION. CFG cryptocurrency
- Best coins for today
- DOGE PREDICTION. DOGE cryptocurrency
- THOR PREDICTION. THOR cryptocurrency
- STFX PREDICTION. STFX cryptocurrency
2024-07-19 11:10