Tim Enneking is managing director at Crypto Asset Management, which oversees Crypto Asset Fund, a regulated US cryptocurrency trading fund.
In this opinion piece, Enneking compares the crypto asset space with the early days of the internet, where time just seemed to fly faster.
Crazy volatility! Standard deviation! Sharpe ratio through the roof! Irrational exuberance cubed! Impossible price movements!
We've all heard some variation of most of the above - and probably a lot more - and we provide a variety of explanations and responses.
Here's some additional, and perhaps new, ammunition in the war (OK, excuse the slight melodrama) to defend cryptocurrencies, specifically, and the crypto asset space, in general.
Repeat after me: Time in the crypto space runs differently than it does in the fiat financial world.
A 24-hour market
Now, you may ask, "So what?" Time runs differently in the crypto space, so calculations should be adjusted accordingly.
First, my impression from trading cryptocurrencies. Initially, I thought that trading moves took place about five times faster in the crypto space compared to the fiat world. But, that quickly seemed to be inadequate, so I moved my estimate to 12 (so one month in the crypto space was equal to one year in the "real" world).
That may sound far-fetched, but while explaining my logic and how it affected technical trading and trend analysis in the crypto space, I realized that this wasn't simply a totally subjective impression.
The NYSE is open 6.5 hours a day, five days a week. The LSE is open 8.5 hours a day, five days a week. The HKSE opens and closes at the same times as the NYSE, but with an hour lunch break. The NSE (National Stock Exchange of India) is open 6.5 hours a day, five days a week, etc.
In general, the average, major fiat stock exchange is open about 6.5 hours a day, five days a week, for a total of 32.5 hours a week. (By far the largest outlier in the group, the LSE, is open 42.5 hours a week, which affects the average more than any other exchange.)
Cryptocurrencies exchanges, by contrast, are open 24/7, for 168 hours a week.
This means crypto markets are open almost 5.2 times longer than fiat exchanges. Add in holidays (which range from eight to 30 days a year, depending on the fiat exchange), and we comfortably get to just over 5.3 times longer.
That's the completely objective portion of the analysis.
Now for the more subjective portion.
Does anyone besides me remember internet time from the pre-dot-com crash days almost 20 years ago? The standard phrase was "one year in the internet space is equal to five years in the real world."
Although that may have been a bit arbitrary, it's not totally random. When a sector is experiencing explosive growth, tremendous enthusiasm, seemingly boundless energy and phenomenal investment (sound familiar?), things happen far faster than in the "regular" world.
Obviously, the exact ratio is impossible to quantify, but it's neither a small number nor an enormous one. Every technology adoption curve shows a rising curve from the "innovators" to the "early majority" (or whatever other virtually identical terms may be used).
That rising curve can be measured in how much more quickly time passes (or how quickly events happen; two different sides of the same coin) compared to "late innovators" and others as the curve peaks and then begins to fall (and as time "slows down" and events take place at a more relaxed pace).
So, for lack of a better number, and given the fact that it's certainly not an unreasonable one, let's use 5.
Which brings us to the appropriate total multiplier for the difference between crypto time and time in the "real" world: 25.
Debunking the bear
But what is this realization good for? What's a practical application of this concept? Take a look at the recent "bear" market (as officially christened by Bloomberg) in cryptocurrencies.
Depending on what you would like to use as a start date, it's lasted a week or up to 10 days (brought on mainly by the tremendous run-up earlier this year and triggered by the media coverage of a possible bitcoin hard fork). Yet, the recovery has already begun.
Since when does a bear market last less than two weeks? In the fiat world it doesn't. However, when you multiply that period by 25 and get almost one year, it makes a lot more sense - the bear market lasted a "normal" period of time.
If you apply the same logic to technical analysis, Sharpe ratios, etc., the metrics look virtually identical to fiat financial metrics. (OK, they are still more volatile.)
Why does this matter? Because, viewed in this light, the crypto world is a much more comfortable place to analyze, invest, trade and discuss.
It also gives us all a very good argument in explaining what we are up to when talking with those fiat Luddites!
Distorted time image via Shutterstock