NYDIG: Sharpe ratio shows Bitcoin returns are “differentiated” and can compensate for volatility risk

According to data from New York Digital Investment Group (NYDIG), Bitcoin is the highest-returning asset despite its high volatility. In an analysis published recently, Greg Cipolaro, global head of research at NYDIG, said Bitcoin's returns are "different" and compared it to other asset classes using the Sharpe ratio. This ratio is used in finance to assess the performance of an asset relative to its risk. Specifically, it calculates the ratio of excess returns to the volatility of those returns, with higher Sharpe ratios indicating 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 a rolling Sharpe ratio, and he concluded from the data: "Compared to almost all asset classes, Bitcoin is in a favorable position on every metric in every time frame." Cipolaro noted that gold's Sharpe ratio over the past 12 months was slightly higher, but the two were so close that the gap was "insignificant." Cipolaro refuted a Goldman Sachs report on October 7 that despite a 40% increase in Bitcoin so far this year, its performance is not enough to compensate for its volatility: "The analysis shows the opposite, and the risk (price volatility) taken by Bitcoin investors is compensated in terms of returns." Cipolaro also pointed out that while the Sharpe ratio is useful for comparing risk-adjusted returns, absolute returns are ultimately key to meeting financial obligations. He added that this indicator does not reflect all the risks that investors may face, such as censorship or asset seizure. (Cointelegraph)