Bitcoin ‘Top Asset for Returns Despite Volatility’, Says NYDIG

Why Trust Techopedia
KEY TAKEAWAYS

  • Bitcoin continues to be the best-performing asset in terms of returns, despite its volatility, according to the New York Digital Investment Group (NYDIG).
  • Bitcoin's Sharpe ratio ranks favorably compared to other major asset classes, indicating its superior risk-adjusted returns.
  • Although gold had a slightly higher Sharpe ratio over the past 12 months, the difference was marginal.
  • Bitcoin's recent price has surged above $64,000, a level not seen since late September.
  • Despite geopolitical risks, analysts remain bullish on Bitcoin's prospects for the fourth quarter.

Bitcoin continues to maintain its position as the best-performing asset in terms of returns, despite its well-known volatility, according to an analysis by the New York Digital Investment Group (NYDIG).

While attention at the moment may be on the best performing memecoins, Bitcoin remains the dominant force in the crypto sphere, with NYDG noting on Bitcoin’s remarkable performance.

NYDG compared Bitcoin favorably to other major asset classes, especially when using key financial metrics like the Sharpe ratio.

Greg Cipolaro, NYDIG’s Global Head of Research, said that Bitcoin “stands apart from the crowd” in terms of returns. In his analysis, Cipolaro compared Bitcoin to other assets such as equities and bonds by calculating their respective Sharpe ratios.

The Sharpe ratio is commonly used in finance to assess the performance of an asset by comparing its returns to its risk. A higher Sharpe ratio indicates a better risk-adjusted return.

Cipolaro noted that when comparing the Sharpe ratios of Bitcoin against those of other asset classes, Bitcoin consistently ranks favorably across multiple timeframes.

His analysis used rolling monthly total returns to create the Sharpe ratios, showing that Bitcoin outperforms nearly every other asset class. “Bitcoin ranks favorably compared to nearly every asset class on every metric over every time frame,” Cipolaro concluded.

Gold Displays Higher Sharpe Ratio than Bitcoin

Notably, gold displayed a slightly higher Sharpe ratio than Bitcoin over the past 12 months. However, Cipolaro suggested the difference was marginal.

“True, gold technically has a higher Sharpe ratio in the past 12 months, but 1.94 vs 1.92 is splitting hairs.”

In his analysis, Cipolaro also responded to a Goldman Sachs note released on October 7, which argued that Bitcoin’s year-to-date performance, despite being up 40%, did not compensate for its volatility.

Cipolaro challenged this viewpoint, asserting that the returns Bitcoin investors enjoy more than make up for the risks associated with its price swings.

“There is nothing to support Goldman Sach’s claim that bitcoin’s returns aren’t sufficient to compensate for 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.”

While Sharpe ratios offer a useful way to measure risk-adjusted returns, Cipolaro reminded investors that absolute returns ultimately matter most when it comes to meeting financial goals.

“One cannot pay for college, mortgages, retirement, pension obligations, or employee salaries with Sharpe ratios. Those can only be met with returns, and here, Bitcoin stands apart from the crowd,” he noted.

In a separate report released earlier in October, NYDIG analysts concluded that Bitcoin remains the best-performing asset so far in 2024 despite experiencing a “seasonally weak” third quarter.

Bitcoin Breaks Above $64,000 Amid Market Surge

On Monday, Bitcoin surged above $64,000, registering a nearly 2% gain in the previous 24 hours. According to data from CoinMarketCap, Bitcoin reached a peak of $64,464 before settling slightly lower, a price level not seen since late September.

The surge triggered a wave of liquidations among traders betting against the cryptocurrency market. More than $100 million in short positions were liquidated in the past day as traders were caught off guard by Bitcoin’s unexpected price jump.

According to data from CoinGlass, 54,649 traders were liquidated for over $166 million, with Bitcoin short positions accounting for $52.33 million of the liquidations. Ether followed with $27.26 million in liquidations.

Bitcoin’s sudden price increase also boosted its market dominance, pushing it back above 58%, a level close to the highest it has reached since April 2021.

Bitcoin Remains Bullish Despite Geopolitical Risks

Bitcoin’s prospects for a bullish Q4 remain intact, despite recent market turbulence stemming from escalating tensions in the Middle East, according to analysts from K33.

A key development influencing market sentiment is the progress in the FTX bankruptcy proceedings. According to K33 analysts Vetle Lunde and David Zimmerman, creditor repayments are expected to begin late in Q4 and extend into early 2025.

The analysts noted that much of the sell-side pressure has already been alleviated, given that many of the crypto assets from the estate have been converted into fiat currency. Furthermore, they estimate that approximately $2.4 billion will potentially flow back into the crypto markets.

Market analysts have also been speculating about Bitcoin’s next move, with some suggesting that the cryptocurrency could be entering a period of significant growth.

Kyle Chassé, a well-known figure in the crypto space, told his 219,000 followers on X that the market is on the brink of an exciting phase. “The next big rally isn’t just a possibility — it’s a reality waiting to unfold,” he wrote.

On-chain analyst James Check echoed this sentiment, pointing out that the momentum appears to be shifting in Bitcoin’s favor. “Pray for the bears,” he wrote on X.

The Bottom Line

Last week, Goldman Sachs argued that Bitcoin’s year-to-date performance, despite being up 40%, did not compensate for its volatility. However, NYDIG’s report challenged this argument.

The digital asset investment firm noted that Bitcoin’s Sharpe ratio ranks favorably compared to other major asset classes, which highlights the leading cryptocurrency’s superior risk-adjusted returns.

FAQs

Why is the Sharpe ratio important for Bitcoin investors?

How does Bitcoin compare to gold as an investment?

Does Bitcoin’s volatility outweigh its returns?

Related Terms

Related Article