What is the Expected Return on Bitcoin? Extracting the Term Structure of Returns from Options Prices
14 Pages Posted: 9 Oct 2021 Last revised: 4 Jan 2022
We infer the forward-looking Bitcoin risk premium from options contracts. Using data from 2018 to 2020, we show that the expected excess returns for Bitcoin are time-varying and significantly higher than in equities or gold, averaging almost 80% per annum. A temporal analysis of the term structure of Bitcoin risk premia reveals an upward sloping term structure during Bitcoin bull markets and downward sloping during Bitcoin bear markets.
Keywords: Bitcoin, cryptocurrency, expected return, term structure, risk premium
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