NYDIG: Sharpe Ratio Shows Bitcoin Returns are "Distinctive", Can Offset Volatility Risk

According to data from the New York Digital Investment Group (NYDIG), despite Bitcoin's significant volatility, it is the asset with the highest return rate. In a recent analysis report, Greg Cipolaro, NYDIG's Global Research Director, stated that Bitcoin's returns are "distinctive" and used the Sharpe ratio to compare it with other asset classes. This ratio is used in finance to evaluate an asset’s performance relative to its risk. Specifically, it calculates the excess return over these returns' volatility; a higher Sharpe ratio indicates better risk-adjusted performance. Cipolaro provided Sharpe ratios for other asset classes (including stocks and bonds) over different holding periods using monthly total returns to create rolling Sharpe ratios. He concluded from his data: "Compared with almost all asset classes, Bitcoin has an advantageous position in every indicator within each time frame."

Cipolaro pointed out that gold's Sharpe ratio was slightly higher over the past 12 months but so close as to be "negligible." On October 7th, a Goldman Sachs report claimed that although Bitcoin had risen by 40% this year so far, its performance was not enough to compensate for its volatility; Cipolaro refuted this: “The analysis results are just opposite - risks borne by bitcoin investors (price fluctuations) have been compensated in terms of returns.” He also noted that while the Sharpe Ratio is useful for comparing risk-adjusted returns, absolute return is ultimately key in fulfilling financial obligations. He added that this metric does not reflect all potential risks faced by investors such as scrutiny or assets being seized.