The global pandemic of current scope is something that was experienced by only a few living people. We have some historical accounts of how it unfolded in the past, but otherwise, it is uncharted territory. It is a true Black Swan event – event that I believe was in nobody’s lineup of stress testing scenarios. But we can still try to get some understanding of the scope of the current situation.

The actual global crisis is a mix of 2 crisis. The first one is the health-care / pandemic crisis, during which millions of people will be infected, and unfortunately, a lot of them will die. The second crisis is the economic crisis/recession, which will follow simultaneously with (or soon after) the first one (due to the decrease in worldwide supply and demand).

The second crisis cannot end before the first one is solved. We cannot exactly say when the market bottom will occur, but at least we can try to model the minimum time needed for things to get under control during the pandemic.

One of the very often promoted attributes of Bitcoin is said to be its “safe heaven” characteristic. Some cryptocurrency proponents advocate that Bitcoin can be used as a store of value mainly during the economic and financial crisis. We argue that it’s not so.

Bitcoin (and all cryptocurrencies too) is, in our opinion, fundamentally more similar to stocks of small companies from the technological sector. It is a very speculative bet on blockchain technology. It may seem unrelated to the broader equity market (like the S&P 500 index) during normal times. But when a stressful time comes, investors are more concerned to meet a deadline for the next mortgage payment. This is the time when the speculative bets are closed, and cash is raised. And this is precisely the time when Bitcoin falls as equities do too.

Financial markets are in panic mode. Everybody is talking about the next bear market and economic implications of spreading coronavirus to the whole world. People are split into two groups. One group reasons that a new covid-19 virus is just a stronger flu. Other are worried and draw parallels to Spanish flu pandemic with tens of millions of dead.

We would like to show you two charts which can explain why the high market volatility can be completely rational.

Some see Bitcoin (BTC) as a payment method of the future; others see it as a speculative asset class. Despite the speculative activity connected with Bitcoin, after all, it is a currency that is different from fiat currencies like the US Dollar or Euro. If you hold fiat currency, there is an opportunity to earn a risk-free rate. But is there the same opportunity also in Bitcoin? And what are the Bitcoin’s risk-free and market rates? These are the questions we had in Quantpedia, and we invite you to join us in our thought experiment that tries to answer them …

Authors: Vojtko, Padysak

Title: What is the Bitcoin’s Risk-Free Interest Rate?

There are many calendar / seasonal anomalies by which we can enhance our strategies to gain more return. One of the least frequent but still very interesting anomalies is for sure the Pre-Election Drift in the stock market in the United States. This year is the election year, and public discussion is getting more heated. The current president of the United States and candidate for re-election, Donald Trump, is a peculiar figure who split the population of the United States into two parts, ones who hate him and those who love him. We can probably expect volatile market moves as we will move closer to this year’s presidential election. But this post will not be about politics but about trading. In this post, we will try to uncover a pattern in historical data that shows significant market moves a few days before elections…

Authors: Vojtko, Cisar

Title: Pre-Election Drift in the Stock Market

The end of the year is a good time for a short recapitulation. Apart from other things we do (which we will summarize in our next blog in a few days), we have published around 50 short blog posts / recherches of academic papers on this blog during the last year. We want to use this opportunity to summarize 10 of them, which were the most popular (based on Google Analytics tool). Maybe you will be able to find something you have not read yet …