Bitcoin Is Soaring According to Wall Street's Most Popular Metric

In the world of finance, the Sharpe ratio reigns supreme. And it turns out that Bitcoin’s Sharpe ratio defies all competitors.

Bitcoin’s Sharpe Ratio

With an increase of 160% since the start of the year, no other asset performs better than Bitcoin. Here are some annual performances of other popular assets:

• Gold: 11%,
• US 10-Year Bonds: 3%,
• S&P: 26%,
• Tesla: 100%,
• Microsoft: 57%.

However, these figures don’t tell the whole story. For equal performance, it is better to invest in an asset with lower volatility.

This year, Bitcoin not only has the best performance but also the best Sharpe ratio, just behind the electronic chip designer NVIDIA:

NEW: #Bitcoin is about to close 2023 with one of the best Sharpe Ratios, second only to $NVDA pic.twitter.com/OGLL7J1bjQ

— Bitcoin News (@BitcoinNewsCom) December 24, 2023

In the following example, stock A boasts a higher Sharpe ratio than stock B.

• Stock A: closes the year 2023 up 10% after hitting a low of -5% during the year,
• Stock B: closes the year 2023 up 10% after hitting a low of -50% during the year.

It was better to invest in stock A.

The Sharpe ratio expresses the performance of an asset in terms of its risk (volatility). It allows one to see at a glance if high returns are also the consequence of greater volatility, and therefore a higher risk.

More specifically, the Sharpe ratio is calculated by dividing the performance of an asset by a risk indicator, in other words its volatility (the standard deviation of the asset’s returns).

Bitcoin’s high Sharpe ratio is not new. Here is the four-year moving average of Bitcoin’s Sharpe ratio compared to other assets.

In the finance world, Sharpe ratio is king, yet when it comes to bitcoin, there's a startling blind spot for Wall Street.

Bitcoin's Sharpe ratio outshines all major asset classes, empirically challenging Wall Street's outdated skepticism. It's not just an anomaly; bitcoin is… pic.twitter.com/7KgnzMpzRX

— Joe Burnett (🔑)³ (@IIICapital) December 26, 2023

In summary, Bitcoin’s performance/risk ratio is excellent. Bitcoin’s Sharpe ratio exceeds that of all major asset classes over a medium-term horizon.

Bitcoin proves that high returns are not always synonymous with high risk. Hence the arrival of Wall Street with its ETFs.