How would BTCSHORT perform | Halvings

In this article, we investigate how BTCSHORT would have performed during previous Bitcoin Halvings.

Introduction

In previous posts about BTCSHORT, we have discussed that BTCSHORT tracks -1x of the daily performance of Bitcoin. 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 the price action of Bitcoin during noticeable events. In this article, we decided to investigate how BTCSHORT would have performed during previous Bitcoin Halvings.

Please note that the following analysis uses historical data to simulate BTCSHORT's theoretical historical performance. This analysis does not include fees or expenses All data for Bitcoin performance is taken from Bitstamp.

Halving 2012

Once every 210,000 blocks or approximately four years Bitcoin’s block reward halves. At Bitcoin’s genesis block its block reward began at 50 BTC and then reduced to 25 BTC on November 28, 2012. Historically, Bitcoin’s price has been largely affected by previous Halving events and some argue that they have been the drivers behind bull markets of 2013 and 2017.

As a thought experiment, it is interesting to see how BTCSHORT would have performed compared to Bitcoin on the day of the 2012 Halving.

At the start of the 29th of November 2012, Bitcoin’s price was up by 1.97% from $11.98 to $12.22 whilst BTCSHORT’s daily performance would theoretically be -1.97%.

As mentioned in previous articles, BTCSHORT’s recommended holding period is equal to one day or less and this fact becomes evident when we look at what would happen if a token holder decided to hold BTCSHORT for a week from the day of the Halving — from 28 November to 3 December.

If BTCSHORT were held over the whole week then by the 3rd of December 2012, Bitcoin’s price would have risen by 3.14% from $11.98 to $12.36. Conversely, BTCSHORT’s performance over the period would hypothetically be -3.93%

BTCSHORT is useful for token holders looking to benefit from daily negative downturns in the price of Bitcoin — however, in this case, a token holder would not have benefited. It’s noticeable that if a token holder had only held the token on the day of the 2012 Halving then the losses would have been massively limited.

Halving 2016

On July 9, 2016, Bitcoin’s block reward halved again from 25 BTC to 12.5 BTC. Let’s look at how Bitcoin performed and also how BTCSHORT would have performed if held from the day.

On the day of the 2016 Halving, Bitcoin’s price fell from $660.24 to $646.86 which was a fall of 2.03% whilst BTCSHORT would have risen by 2.04%. This means that a token holder would have benefitted from holding BTCSHORT on the day of the Halving and hedged the downside of Bitcoin’s performance on the day. The situation is more complicated if BTCSHORT was held for longer than one day.

Due to BTCSHORT’s rebalance at the end of each day (5 PM CET), BTCSHORT does not maintain notional exposure to -1x of Bitcoin’s performance over multiple days. Given this fact, the token is not ideal for multi-day holding periods if the price of Bitcoin does not constantly decline each day during the holding period. As we can see, the gains made on the first day of holding BTCSHORT dissipate in the coming days due to the mean reversion of Bitcoin’s returns. By the end of the week, Bitcoin’s returns over the period (9 July to 16 July) was 0.74% whilst BTCSHORT’s performance was 1.05% — higher than Bitcoin’s but still much lower than the 2.04% at the end of 9 July.

Conclusion

BTCSHORT is a useful tool to allow token holders to get notional exposure to the inverse (-1x) daily performance of Bitcoin. While it is debatable whether the upcoming Halving will have a positive or negative impact on the immediate price of Bitcoin, historical data shows that BTCSHORT provides an excellent way to hedge against its downside risk on a daily basis. As such, there is strong evidence of BTCSHORT’s usefulness as a tool within a token holder’s arsenal. However, in total, due to the compounding of 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.

Disclaimer

This document has been prepared and issued by Amun Limited (“Amun”). This document may contain market commentary. All information used in the publication of this document has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this document or the information contained/referenced herein.

This document may contain independent market commentary prepared by Amun based on publicly available information. Although Amun endeavors to ensure the accuracy of the content in this document, Amun does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this document make no warranties or representation of any kind relating to such data. Where Amun has expressed its own opinions related to product or market activity, these views may change. Neither Amun, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.

Crypto asset trading involves a high degree of risk. The crypto asset market is new to many and unproven and may have the potential to not grow as expected. Currently, there is relatively small use of crypto assets in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect an investment in crypto assets. In order to participate in the trading of crypto assets, you should be capable of evaluating the merits and risks of the investment and be able to bear the economic risk of losing your entire investment.

Nothing in this document (or any other documents mentioned herein) is or should be considered to be an invitation to enter into an investment and is not intended to be an offering of securities in any jurisdiction nor does it constitute an offer or an invitation to sell shares, securities or rights belonging to the Issuer or any related or associated company. This document has not been registered with or approved by any regulator in any jurisdiction. Readers are cautioned that any historical performance information or forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results or performance may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax, or other advice and users are cautioned against basing undue reliance, investment decisions or other decisions solely on the content hereof.

Any historical performance included in this document may be based on back testing which is a means of evaluating a particular strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes and neither represents actual performance nor should it be interpreted as an indication of actual or future performance.

The Tokens are complex products which incorporate a high degree of risk and should only be bought or traded in by persons with appropriate technical knowledge who have experience with similar products.

The Tokens have not been registered with or approved by any regulator in any jurisdiction. The Tokens are not available for purchase by individuals or entities who are ordinarily resident in the United States, Switzerland, the Seychelles or any other country on the Prohibited List.

The Issuer reserves the right to restrict the sale of the Tokens in any jurisdiction or to any individuals or entities from time to time.

Please see our legal documents for more information.

Amun Updates

Subscribe to receive the latest token insights.