Peakedness and Tail Heaviness in Crypto Returns: A Risk Management Perspective on Bitcoin and Ethereum

Abstract

The cryptocurrency market offers significant investment opportunities, but with high levels of financial risk compared to traditional asset classes. This study analyzes the daily returns of Bitcoin and Ethereum, focusing on tail behavior and peakedness to assess risk. Using the flexible Generalized Tempered Stable (GTS) distribution, we capture significant deviations from normality. Results show Bitcoin returns are more concentrated around the mean, with 80 % of returns between$-1.27 \%$and 2.84 %, while Ethereum is more dispersed-only 40 % of its returns fall in that range. Bitcoin's distribution is more sharply peaked; Ethereum has heavier tails and greater exposure to extreme fluctuations. These findings underscore the importance of using advanced models like the GTS for accurate risk management and portfolio optimization in cryptocurrencies.