Not all investments lose value equally: a recovery period for digital assets
Categories: Crypto News US
Not all investments lose value equally: a recovery period for digital assets
When investing in the financial markets, people often underestimate the possibility that, over time, the investment may lose its value, and recovery of temporary losses will take time. The deeper the damage, the more energy is needed to compensate for the loss. If I invest $100 and lose 10%, I get $90 (whether I keep the investment or liquidate it).
So, what return do I have to pay to go back to $100? I have to earn 11%, because with a base of $90, if I make 10%, I end up with $99. This effect is amplified if I lose 20% - to get back from $80 to $100, I have to make 25%. The Ulcer Index, that is, the index created by Peter Martin that calculates how long an asset has been below its previous high, is crystal clear.
Investing in bitcoins ulcers many months, but then leads to incredible returns, forgetting the period of stomach ache from losses if one has the patience to wait. Compared to the previous two graphs, which cover a period of 50 years, while this only covers 12 years, the presence of a loss zone is prominent, although in reality, bitcoin has always yielded incredibly high returns. which allowed it to be recovered. Up to 900% in less than two years.
Instead, shrewd investors who were initially skeptical of bitcoin until it was proven to rise again in the period of the onset of COVID-19 (ie March-April 2020), realized that the asset had There are unique and interesting features, not the least of which is its potential. To overcome the lows.
This means not only a market, but a market that believes (albeit still with an imperfect model) that bitcoin has a fair value value and therefore, at certain prices, it is a bargain to buy. This is probably the best reason to have a percentage of digital assets in a portfolio, preferably through an actively managed quantitative fund, but you already know this because I see conflicts of interest.