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How to reduce volatility?
Even though we believe that Bitcoin represents the future, the volatility can be massive, which tends to deter typical stock investors. We built our strategy to focus on reducing volatility by increasing the amount of traditional currency on periods of uncertainties and downturns. This strategy is designed to create more consistent return potential in the long run.
How does it work?
- Data is collected from various sources to create propriety indicators: technical patterns, realized volatility measures, buy/sell pressure measures, social media sentiment.
- We have trained a machine learning algorithm to predict the short-term direction of future returns based on those indicators.
- We allocate between 60% and 100% of our portfolio to Bitcoin, depending on the confidence in the predicted future direction, in an effort to reduce the strong volatility. The rest is invested in USD.
This a pure algorithmic trading strategy developed by our Quantitative Asset Management department.
Advantages of the Certificate for investors
The investment process in our certificate is very straightforward. The exposure is only Bitcoin and cash, and easily traceable. You can trade our certificate on the SIX exchange.
Cybersecurity is one of our primary concerns and while it is very easy to trade the certificate, there is no possible hassle or theft. You do not have to worry about any private keys or storage. We handle everything for you.
The Swissquote Bitcoin Active Certificate is traded on the SIX Structured Products Exchange in Switzerland.
Valor: USD 1'259.00
SQ Active Certificate decreases the Bitcoin exposure during downturn periods, thus generating excess returns over Bitcoin performance. During BTC correction periods (mid-September and mid-October), the quantitative strategy reduces the losses. However, the cost of downside protection is that during uptrend periods, the strategy is rarely 100% long Bitcoin. In other words, the strategy has the tendency to slightly underperform the Bitcoin’s performance. Bitcoin spent most of 2017 drifting higher, leaving little opportunity for the strategy to add-value. Should a significant, multi-period correction occur, the quantitative strategy will add-value.
Please find below a statistics summary of our backtest since the 1st of September 2014 including fees.
|SQ Certificate||60% BTC||100% BTC|
|Annualized Std Dev||54.82%||39.97%||66.58%|
What is exactly Bitcoin and is it a bubble?
Bitcoin is a digital currency that does not need a third party to control transactions. Miners validate transactions in a decentralized and trustless environment. The fact that it grasps a lot of attention does not mean that it is overvalued. Bitcoin has a value because it is scarce, the maximum supply is 21 million and has a utility, storage of value. One cannot shut down Bitcoin. All the computers should be switched off for Bitcoin to disappear.
Is it a good time to invest in Bitcoin and why I should buy a certificate?
We are very optimistic concerning the future of the technology and Bitcoin is going more and more mainstream and will keep on benefiting of its first mover status. Massive inflows of money are now heading towards the first digital currency. The number of Bitcoin wallet holders is still marginal regarding the potential.
Our objective is to enhance the return while limiting downside risks. On top of that, you do not have to be concerned on how to keep your bitcoin as we keep everything safe for you. No private keys or storage issues.
What are cryptocurrencies?
Cryptocurrencies are the product of a technology named blockchain that uses a decentralized ledger without the intervention of an external third-party to complete transactions. Cryptocurrencies can be seen as a peer-to-peer network where every user can own a record of a ledger, compete for validation of transactions and get a reward for it.
Cryptocurrencies are simply a medium of exchange, created and stored electronically in the blockchain, utilizing encryption procedures to control the creation of monetary units and to confirm the exchange of assets.
Digital currencies have no intrinsic value and no physical form. Central banks do not decide on the supply and the system is completely decentralized.
Satoshi Nakamoto started the Bitcoin network in 2009, using blockchain technology to solve the double-spending issue in a decentralized environment, meaning that no one can spend more than what is owned. In a typical world, it is usually banks or other institutions that control and avoid any double-spending attempts. Following the financial crisis and the extraordinary central bank balance sheet expansion that ensued, investors started doubting the “real” value of fiat currencies. As a result, cryptocurrencies such as Bitcoin, which are decentralised and in limited supply, have grown in popularity. As bitcoin network activity has exponentially increased, so has its value.
Smarter Bitcoin Investment
There is mounting evidence that cryptocurrency led by Bitcoin will revolutionize global monetary systems with its ease of trading, rapidly expanding user network and the general acceptance of digital currencies as a form of exchange. Even critics have lowered their attacks on the validity of cryptocurrencies as an increasing number of established individuals, financial institutions and governments integrate cryptocurrencies into their business strategies.
Bitcoin has become the standard for decentralized digital currencies. The crypto-asset has been around the longest, is the most widely accepted, and boasts the largest daily trading volume and the highest market capitalization. Investors interested in entering the cryptocurrency markets view Bitcoin as a required investment. While high returns tempt speculators, extreme volatility obviously concerns many investors.