A Study on Risk and Return Performance of Selected Cryptocurrencies

Abstract

The present study aims to analyze the return and risk performance of selected cryptocurrencies in order to find out which cryptocurrencies have small risks and large returns. The research time period is 2017 to 2022. The objective of this research is to compute and compare the risk and return performance of the selected cryptos. The findings of this research are that the risk is very high in Bitcoin compared to Ethereum, as shown in the data analysis, and Ethereum has high returns. Before starting an investment, it is better to look at the ability of Cryptocurrency assets to minimize risks and make sure that the investment objectives are for the long and short term.

Introduction

Cryptocurrency is a form of digital currency that allows peer-to-peer transactions without banks or central authorities. It operates using blockchain technology, ensuring transparency and security through encryption. While cryptocurrencies are decentralized and accessible, they are also unregulated, uninsured, and carry investment risks.

Objectives of the Study

1. Evaluate returns and risks of selected cryptocurrencies (focus: Bitcoin).

2. Compare risk and return performance over different years.

3. Analyze historical return performance using secondary data.

Scope & Need of the Study

• Scope: Focuses on the trade-off between the simplicity and accessibility of crypto and its inherent risks, placing full control and responsibility on the user.

• Need: Crypto is a trending topic among youth, investors, IT professionals, and the media, warranting deeper analysis.

Literature Review Highlights

• Cryptocurrency markets are time-varying in efficiency (Le Tran & Leirvik, 2017).

• Lack of regulatory authority and vulnerability to crimes like money laundering pose risks (Amsyar et al., 2019).

• Bitcoin/ETH do not correlate significantly with fiat currencies like EUR/USD (Dro?d? et al., 2015).

• There are rising dependencies among cryptocurrencies (Vaz de Melo & Fluminense, 2020).

• Risk of price volatility and jumps is evident from historical data (Tu et al., 2017).

Methodology

• Data Source: Secondary data from websites like Bitcoinprice.com, Investing.com, and Yahoo Finance.

• Risk & Return Calculation:

  • Return: (P1−P0)/P0(P1 - P0) / P0(P1−P0)/P0 × 100

  • Mean Return: ΣR / n

  • Risk (Standard Deviation): √(Σ(R - R?)² / n)

Bitcoin Risk & Return Analysis by Year

Discussion & Key Findings

• Bitcoin's performance has varied significantly year-to-year.

• The highest return was in 2023 (13.245%) with lowest risk (1.027%), showing strong market performance and reduced volatility.

• 2022 marked the only year with negative returns (-9.69%), reflecting a bearish market trend.

• Risk has declined significantly post-2021, suggesting increased market maturity or stability.

Conclusion

This study aims to look at the profits and risks of cryptocurrencies like Bitcoin, Ethereum, Binance, and Ripple. Bitcoin gives a higher return on investment than Ethereum. Cryptocurrency is growing fast in today’s digital world. Rules and laws help keep investors safe and help the economy grow. Since cryptocurrencies are global, you can use them in any country without changing money. Blockchain technology is very secure and helps make sure your money goes to or comes from the right person. People receiving Ethereum won\'t have to pay anything for the transactions, and Ethereum has a lot of support. All of these will help Ethereum get more users, and if everyone uses Ethereum, it could replace official currencies.

References

[1] Le Tran, V., & Leirvik, T. (2017). \"Efficiency in the markets of cryptocurrencies.\" Finance Research Letters, 35, 101382. [2] Amsyar, F., et al. (2019). \"The challenge of utilizing cryptocurrency and blockchain technology in the globalization era.\" Journal of Computer Science and Technology Studies, 1(1), 1-9. [3] Dro?d?, S., et al. (2015). \"Analysis of correlations between Bitcoin, Ethereum and EUR/USD exchange rates.\" Physica A: Statistical Mechanics and its Applications, 515, 762–772. [4] Fang, F., Ventre, C., Basios, M., Kanthan, L., Martinez-Rego, D., Wu, F., & Zohren, S. (2011). \"Cryptocurrency trading: A comprehensive survey.\" Journal of Financial Data Science, 3(4), 10-29. [5] Whinston, A. B. (2019). \"Cryptocurrencies and their monetary implications.\" Monetary Economics and Digital Innovation, Unpublished paper. [6] Jain, D. K. (2020). \"The impact of cryptocurrency emergence on global economies.\" International Journal of Management, 11(4), 30–37. [7] Vaz de Melo, P. O. S., & Fluminense, U. F. (2020). \"Dependency strength among cryptocurrencies: Implications for portfolio diversification.\" Applied Economics Letters, 27(9), 739–745. [8] Tu, Y., Sun, G., & Wang, J. (2017). \"Early warning signals of cryptocurrency crashes using standard deviation jumps.\" Physica A: Statistical Mechanics and its Applications, 491, 948–955. [9] Mikhaylov, A. (2018). \"Cryptocurrency market maturity and its implications for investors.\" Investment Management and Financial Innovations, 15(3), 83–91. [10] Igoni, A. H., et al. (2013). \"Digital currencies and monetary policy independence: Evidence from South Africa and Nigeria.\" Journal of Economics and Sustainable Development, 4(9), 86–93.

Copyright

Copyright © 2025 Mrs. Nutan Singh, Chendi Anushai. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.