Bitcoin’s Sharpe Ratio slides to lowest since 2022.

Share This Post

Professional investors don’t just look at a coin’s price relative to its long-term average to assess whether it’s cheap. They use metrics such as the Sharpe Ratio to determine position sizing.

Imagine two coins: A and B. Coin A has fallen 30% from its recent high, but in a fairly steady way. Coin B has also fallen 30%, but its price is all over the place, jumping up and down by big percentages every day. Looking only at the drop from the high, both coins look equally “cheap.”

A professional investor would look beyond the price drop and consider the risk-adjusted return.

In this case, A’s smoother price path might give it a Sharpe Ratio of, say, 1.5, while Coin B’s wild swings leave it with a Sharpe Ratio of just 0.5. So even though both have the same 30% drop, Coin A clearly outperforms per unit of risk, making it the more attractive choice for sizing a position.

Historical context

While a -20 Sharpe Ratio reflects a year of poor volatility-adjusted performance, it also lights up a rare bottoming signal for the token’s price.

Historically, every time the yearly risk-adjusted return has reached this level of “unattractiveness,” it has marked the point of maximum seller exhaustion.

Related Posts

JPMorgan’s JLTXX Tokenized Money Market Fund AUM Grows 250% in a Month on Ethereum

JPMorgan's JLTXX tokenized money market fund has grown its...

Trump-Backed American Bitcoin (ABTC) Pushes Treasury Past 8,000 BTC

American Bitcoin Corp (Nasdaq: ABTC) has moved...

Luxembourg upgrades Ripple’s preliminary crypto asset provider to fully compliant

Ripple said Monday that Luxembourg upgraded its preliminary Crypto-Asset...

Bitcoin gets bullish signals from inflation breakevens

"That’s when the deflationary impulse from falling oil prices...

Bitcoin’s U.S. reserve still a work-in-progress as federal agencies hash it out

The White House's chief crypto adviser, Patrick Witt, and...

Michael Saylor’s Strategy dramatically ups pace of bitcoin sales, raising $216 million

Strategy (MSTR) sold 3,588 bitcoin for approximately $216 million...