($26.5 trillion) Motivation
Fixed supply commodity-monies like gold and bitcoin are high-performing, sovereign-independent, and inflation-resistant; they’re just not stable enough for commerce. Significantly greater utility can be unlocked by reorganizing the volatility of these assets into senior and junior derivative assets.
On negative-return years, bitcoin's historical average is a striking -55.94%. That is to say, if you unexpectedly needed to withdraw from value held in bitcoin, you might be prohibitively down. At (1/5th) volatility, however, bitcoin is extremely usable as a near and medium term store of value.
Backtesting 1/5th volatility bitcoin (rebalanced annually) shows an average downside return of -11.73% compared with bitcoin's -55.94%; and an ARR of 34.48%. Meaning as a holder of this asset, you would be generating a 34.48% return annually; and if you unexpectedly needed to withdraw on a bad year, you would have only been down -11.73%.
| Avg Return | Avg Up Year | Avg Down Year | Worst Year | Up years | Down years | |
|---|---|---|---|---|---|---|
| BTC | 175.68% | 252.88% | -55.94% | -73.56% | 9.0 | 3.0 |
| SrBTC (20%) | 34.48% | 49.89% | -11.73% | -16.87% | 9.0 | 3.0 |
Putting this into perspective, a risk-adjusted 34.48% ARR outperforms the average global hedge fund, money market fund, and private equity fund.
| Asset Class | Avg Return | Estimated AUM |
|---|---|---|
| Global Private Equity | 10.5% | $13.1T |
| Global Hedge Funds | 6-8% | $3.5T |
| Global Money Markets | 2.91% | $9.9T |
Combined, we estimate low volatility assets (LVA’s) to be a $26.5T market opportunity. They are significant bull cases for both BTC and gold.
Motivation for High Volatility Assets
As you read on below you'll learn that in the process of creating low volatiliy assets, we also produce corresponding high volatilty assets (HVA's). Read about the movtivation for HVA's.