How Is the Beta Coefficient Adapted for Crypto Assets in CAPM?
The Beta coefficient, which measures an asset's volatility relative to the overall market, is challenging to calculate for learn. A proxy for the "market" is often used, such as the total crypto market cap or a broad index like the S&P 500, though the latter is less common.
The resulting crypto Beta is often very high, reflecting the asset class's systemic risk. Due to the nascent nature of the market, many analysts use an estimated or historical Beta from similar tokens, or simply rely on a high-risk premium instead of a formal CAPM.
Glossar
Crypto Beta
Definition ⎊ Crypto beta represents the quantitative measure of a single digital asset's systematic risk exposure relative to a broad, representative cryptocurrency market index.
Beta
Measurement ⎊ Beta quantifies the systematic risk of an asset relative to a specific market benchmark.
Total Crypto Market Cap
Total Crypto Market Cap ⎊ The cumulative market valuation of all publicly traded digital assets across all blockchains, representing the overall size and financial scope of the entire cryptocurrency sector.
Beta Coefficient
Correlation ⎊ The beta coefficient, within cryptocurrency markets and derivatives, quantifies a derivative's sensitivity to movements in an underlying asset, typically a cryptocurrency or a basket of cryptocurrencies.
Idiosyncratic Risk
Exposure ⎊ Idiosyncratic risk, within cryptocurrency derivatives and options trading, represents the vulnerability stemming from asset-specific factors not correlated with broader market movements.