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Nansen Risk Barometer: Navigating Crypto Ups and Downs
Aurelie Barthere
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Key Takeaways
6 min read
  • In this note, we present and test the Nansen Risk Barometer…
  • …designed to navigate large crypto price drawdowns.
  • Overlaying the Barometer from 2021 on vs a BTC buy-and-hold strategy would have delivered a shallower drawdown of -41% to -44% vs. -77% while preserving average annual returns: +45% to +48% vs. +38%.

Introduction

History shows that the best decision for a crypto investor to maximize returns would have been to buy and hold BTC (or any other “major” cryptocurrency) over time.

Buying BTC/USD in January 2021 and holding it till today (January 2025) would have generated a cumulative return of 247% or an average annualized return of 50%. The main drawback of its strategy is its riskiness: an average annual volatility of ~60% and a maximum peak-to-trough drawdown of -77% (!). If investors lose confidence in BTC or need to cash out because of external constraints amid this drawdown and crystallize a loss by selling, the “buy-and-hold” strategy would become less attractive. One way to prevent too sharp drawdowns would be to size the...