How Risky is Bitcoin?

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Which is riskier, bitcoin or Tesla? Here is the analytical framework I created to answer that question.

It is intellectually and emotionally satisfying to map something to a scale of 0-100, and investment risk is no exception. In the early days of my firm, Andes Wealth Technologies, I tried to do this. But I got stuck at the first step: how to define a risk score of 100. Should it be the average risk of a 100% equity portfolio or the risk at the height of a financial crisis? Or should it be the risk of the riskiest asset, say, bitcoin?

Then I learned about Riskalyze and its “risk number,” which freed me.

I decided to take a more direct approach to use plain old volatility, which is more transparent and works better for the efficient frontier and other visualizations. Later, Morningstar and Orion adopted similar risk scales of 0-100, once again demonstrating the universal appeal of such a scale.

This article shows that a risk scale of 0-100 can be achieved by multiplying the volatility by five, in which case the risk score of cash is 0, and equity is 100. Using this scale, the risk score of bitcoin is 400 and TSLA (Tesla) 300.

I go on to explain the bitcoin mining process and share a few considerations about investing in bitcoin.