($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 every 7 days) shows an average downside return of -13.67% compared with bitcoin's -55.94%; and an ARR of 15.98%. Meaning as a holder of this asset, you would be generating a 15.98% return annually; and if you unexpectedly needed to withdraw on a bad year, you would have only been down -13.67%.
| 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 |
| lvBTC (20%) | 15.98% | 25.86% | -13.67% | -19.14% | 9.0 | 3.0 |
Putting this into perspective, a risk-adjusted 15.98% 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.