Bitcoin is the best-performing asset for returns despite its volatility, according to the New York Digital Investment Group (NYDIG).
In an analysis published on Oct. 11, Greg Cipolaro, global head of research at NYDIG, said Bitcoin (BTC) “stands apart from the crowd” for its returns and compared it to other asset classes using the Sharpe ratio.
The ratio is used in finance to evaluate the performance of an asset relative to its risk. Specifically, it calculates the ratio of excess returns to the volatility of those returns, with a higher Sharpe ratio indicating better risk-adjusted performance.
Cipolaro provided Sharpe ratios of other asset classes, including equities and bonds, over different holding periods using monthly total returns to create rolling Sharpe ratios comprising the most recent readings.
“Bitcoin ranks favorably compared to nearly every asset class on every metric over every time frame,” he concluded from the data.
He noted that gold had a slightly higher Sharpe ratio over the past 12 months but said the two were so close that they were “splitting hairs,” he said.
Sharpe ratio asset comparisons. Source: NYDIG
Cipolaro was challenging a Goldman Sachs note on Oct. 7 that claimed despite being up 40% year-to-date, Bitcoin’s performance was not sufficient to compensate for its volatility.
“This analysis shows the contrary, that the risks (price volatility) that Bitcoin investors endure are more than made up for in terms of returns.”
Cipolaro also noted that while Sharpe ratios are useful for comparing risk-adjusted returns, absolute returns are what ultimately matter for meeting financial obligations.
He also pointed out that this metric doesn’t capture all types of risk an investor might face, such as censorship or seizure of assets.
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In a report released earlier in October, NYDIG analysts concluded that Bitcoin remains the best-performing asset so far this year, even after a “seasonally weak” third quarter.
Bitcoin has traded flat over the past day following a tightly range-bound weekend. It has retreated from an intraday high of $63,150 during late trading on Oct. 13 to trade at $62,560 at the time of publication.