How does BTCSHORT perform? | Black Thursday

In this case study we analyze how BTCSHORT would've performed on March 12 2020 (dubbed "Black Thursday") where the crypto market faced a noticeable downturn.


In previous posts about BTCSHORT, we have discussed that BTCSHORT provides notional exposure to the inverse (-1x) of Bitcoin’s daily performance. This means that if Bitcoin’s price falls by 5% in a day then BTCSHORT’s price will rise by 5%. It is useful to see how BTCSHORT would have performed at previous historical market conditions as such this piece of research will simulate BTCSHORT’s historical performance based on Bitcoin’s historical price. In this piece we ask the question:how would BTCSHORT have performed during Bitcoin’s flash crash on March 12? Please note that the following analysis uses historical data to simulate BTCSHORT's theoretical historical performance. All data for Bitcoin performance is taken from Bitstamp. This analysis does not include fees or expenses.

Black Thursday

On March 12th, Bitcoin’s price fell from $7935.44 to $4761.29 in what was one of the biggest single-day drops in Bitcoin’s history — as Bitcoin returned -40%. This day also represented a perfect opportunity for those seeking to get -1x exposure to Bitcoin’s daily performance. The chart below shows the performance of BTCSHORT if it was bought on March 11 and then sold at the end of March 12.

BTCSHORT’s cumulative performance over the same time frame was 51.53% as, due to its large price increase, it rebalanced one additional time during the day. This means that if a token holder held $100 worth of BTCSHORT on March 12 and then sold at the end of the day on March 12, they would have around $151.

Holding BTCSHORT for longer than a single day can lead to worsening returns due to BTCSHORT’s daily rebalancing. This rebalancing causes returns to compound which means that in periods where Bitcoin’s price goes up and then down by the same amount, BTCSHORT would actually underperform Bitcoin. The chart below shows what would have happened if a token holder held BTCSHORT for more than a day following the purchase on March 12 to March 18.


As we can see, the returns of BTCSHORT taper off following its large rise on Black Thursday. This is due to the fact that in subsequent days the price of Bitcoin on a daily basis continued to rise and fall. As we have mentioned in previous research pieces, BTCSHORT provides notional inverse exposure to Bitcoin’s daily performance. This is not the case over longer periods of time due to compounding — as we explained in previous blog posts. On March 12 as the price of Bitcoin fell by more than 33% during the day, BTCSHORT in addition would have undergone an intraday rebalances given its rebalance threshold of ±33%. There is also rebalancing every single day which causes additional compounding.

The table below shows the performance of Bitcoin and BTCSHORT over the March 12–18 time frame shown above.


BTCSHORT is a useful tool to allow token holders to get notional exposure to the inverse (-1x) of Bitcoin’s daily performance. We showed how if one could have bought BTCSHORT on Black Thursday during Bitcoin’s large price fall and then sold the next day, you would have benefitted noticeably. However, we also showed how, due to the compounding BTCSHORT, it is not advisable to hold BTCSHORT for more than one day as BTCSHORT does not give a token holder notional exposure to the inverse of Bitcoin’s performance over multiple days.


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