Bitcoin’s Historical Risk Premium is Unexplainable Division
Investment Management
1. Bitcoin Factor Exposures and Unexplained Premium 2. Tactical Hedge Funds’ Factor Exposures and Unexplained Premium 20.0%
15.0%
Annual Risk Premium w wow 6 z
|
Annual Risk Premium
BS Equity Term LJ @ Funding Liquidity
© Exchange Rate
© Emerging Market
Bitcoin
~341pp
@ Factor Risk Premium
Historical Risk Premium
iti ~~ iia SSS SS ee eee eee eee Bitcoin 3.6% £132.2%
1.2% 4
° bo x
Annual Risk Premium ° ° & a x x
Annual Risk Premium
1.0% +
MEquity aan mTerm 6% m Funding
Liquidity
ey Exchange Rate 0.2% + | Emerging Market 0.0% +
Tactical Trading Hedge Funds
5.0% 4
2.8pp 4.0% + ™ Factor Risk Premium 3.0% + WHistorical Risk Premium 2.0% 4 1.0% + 0.0% +
Tactical Trading Hedge Funds 2.8% + 3.6%
" Bitcoin’s 300%+ historical annual risk premium is idiosyncratic and cannot be explained by ISG’s multi-factor model.
= An inability to understand sources of risk and return makes one incapable of predicting when performance will reverse.
= For tactical hedge funds, half of the historical risk premium is explained by the factor model.
(1) Peter C.B. Phillips, Shu-Ping Shi and Jun Yu, “Testing for Multiple Bubbles: Historical Episodes of Exuberance and Collapse in the S&P 500,” International Economic Review, Oct 28, 2015.
Source: Investment Strategy Group, Bloomberg.
18 HOUSE_OVERSIGHT_025681