Bitcoin Sharpe Ratio Drops to Lowest Since Late 2022 as Risk-Adjusted Returns Deteriorate
Summary
- Bitcoin’s Sharpe ratio fell to -21, its lowest level since late 2022, signaling weaker risk-adjusted returns.
- Bitcoin is down about 28% this year, and its returns are trailing the 4.45% yield on the 10-year US Treasury, making it less attractive than risk-free assets.
- Still, an annual Bitcoin Sharpe ratio near -20 coincided with bear-market bottoms in 2015, 2019 and 2022, and was followed by a bullish reversal and a sharp price rebound.
Bitcoin’s Sharpe ratio, a gauge of risk-adjusted returns, has fallen to its lowest level since late 2022.
CoinDesk reported on July 6 that on-chain data platform CryptoQuant said Bitcoin’s 365-day rolling Sharpe ratio fell to -21 in late June. It has recently traded near -20. Bitcoin is down about 28% so far this year.
The Sharpe ratio, developed by Nobel Prize-winning economist William Sharpe, is calculated by subtracting the risk-free rate from an asset’s return and dividing the result by price volatility. A positive reading indicates investors are being compensated for taking on volatility risk. A negative reading indicates the opposite. With the yield on the 10-year US Treasury at about 4.45%, Bitcoin investors have earned returns far below those of risk-free assets while taking on much greater volatility.
CryptoQuant also highlighted the historical context. Bitcoin’s annual Sharpe ratio fell to about -20 around bear-market bottoms in 2015, 2019 and 2022, and each time was followed by a bullish reversal and a sharp price rebound.
Minseung Kang
minriver@bloomingbit.ioBlockchain journalist | Writer of Trade Now & Altcoin Now, must-read content for investors.