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

See all articles by Sean Foley

Sean Foley

Macquarie University

Simeng Li

The University of Sydney

Hamish Malloch

The University of Sydney; Financial Research Network (FIRN)

Jiri Svec

The University of Sydney - Discipline of Finance

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Abstract

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

Suggested Citation

Foley, Sean and Li, Simeng and Malloch, Hamish and Svec, Jiri, What is the Expected Return on Bitcoin? Extracting the Term Structure of Returns from Options Prices. Available at SSRN: https://ssrn.com/abstract=3939413

Sean Foley (Contact Author)

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia
0417702600 (Phone)

Simeng Li

The University of Sydney ( email )

A20 JOHN WOOLLEY BUILDING
UNIVERSITY OF SYDNEY
CAMPERDOWN, 2006
Australia

Hamish Malloch

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Jiri Svec

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 9036 6241 (Phone)

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