Stranger Things: The Upside of Down Bitcoin Prices

Edward Woodford is the co-founder and CEO of Seed CX, which, offers a licensed exchange for institutional trading and settlement of spot digital asset products and plans to offer a market for CFTC-regulated digital asset derivatives.

While 2018's falling bitcoin prices led many observers to write off digital assets altogether, the correction should actually help force the market as a whole to mature.

Their entry will signal to other traders that the market is stable and trustworthy.

Traders were willing to rely on little-known or unregulated exchanges despite the risks - the potential upside made those risks worthwhile.

In the early days, digital assets presented a unique scenario by conventional trading standards: the operational risk of trading was greater than the market risk.

Trading on platforms with very high operational risks could be entirely logical using an "Adjusted" Sharpe Ratio, a risk-weighted measure.

The adjusted Sharpe Ratio would take into account the return of investing in bitcoin over a period of time and the risk-free rate of investing in a risk-free asset and determine the risk of the portfolio to determine the risk-adjusted return.

Aside from a purely directional strategy, traders will tell you that "Easy returns," such as simple arbitrage opportunities have disappeared.

In the first three quarters of 2018, hackers stole $927 million of cryptocurrency from exchanges and other trading platforms.

Today, thanks to falling prices, institutional investors are not only entering the market but are increasingly dictating the terms of the marketplace - to the benefit of everyone trading in it.