Bitcoin dominance is rising sharply and currently stands at 66.11 percent, according to Coin360, a cryptocurrency ranking website. Earlier this year, Bitfinex launched a Bitcoin dominance (BTCDOM) perpetual swap, which enables sophisticated investors to manage risk and profit from Bitcoin’s increasing dominance in recent weeks. Interestingly, the BTCDOM product has exceptionally performed since Sep 1: While BTC +9.76%, ETH -9.95%, LTC -13.07%, BTCDOM is +33.47%*
Bitfinex Bitcoin Dominance Product
As per a write-up shared by BitFinex team with Koinpost over mail, since the inception of the BTCDOM index, the product has shown returns significant returns. These are: BTC +56.69%, ETH +95.78%, BTCDOM +56.85%.
However, BTCDOM has much lower annualised volatility at 38.60% as it is based on BTC crosses vs. other “alts” rather than a pure directional play like being long BTC/USD only. ETH vol: 71.55% and BTC vol at 48.51%. So risk-adjusted returns for BTCDOM is better than BTC over the period.
Higher Annualized Volatility Of Altcoins
Given that the other alts in the index have higher annualised volatility, we can see historically that whenever there is a drawdown on risk assets, BTC fairs better than the higher beta altcoins. Therefore, being long BTCDOM provides the holder with an inherent hedge as it is a long/short position in a drawdown. BTCDOM comes into it’s own however when BTC rallies and alts tail off as shown over the past 6 weeks.
As per the write-up shared by Bitfinex, these are the returns since Sep 1st: BTC +21.10%, ETH -7.47%, BTCDOM +56.83%! Hence the asymmetric nature of the return profile of BTC (tends to sell-off least and rally first) allows traders protection to the downside without compromising upside potential.
At the time of reporting, BTC dominance is standing at 64.1%, as per coinmarketcap. The crypto asset is down by 0.82% in the last 24-hours and is changing hands at around 15160 USD, at press time.
What do you think about the rising Bitcoin volatility and dominance and the different instruments using the crypto volatility in their basic structure? Let us know in the comments below!
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