Bitcoin is the Only Asset With “Sharpe Ratio” More Than 1: PlanB

Bitcoin Twitter commentator PlanB has claimed that BTC is the only asset that has a Sharpe ratio of greater than 1. The Sharpe ratio describes the increased rate of return received for the extra volatility sustained when holding a riskier type of asset.

Risk vs. Reward

To understand the Sharpe ratio, one must take into consideration the returns of holding a risk-free asset, compared to holding a riskier asset with higher returns. In this case, a risk-free asset is considered something like a US treasury T-Bill, which is backed by the full faith and credit of the US government, along with the world’s largest economy.

The Sharpe ratio is the difference between the returns of the higher-returning, more volatile assets when compared to the risk-free, much lower returns of a safer asset like US T-Bills. It is important to note that Sharpe ratios only measure the returns based on the amount of risk and the ratio doesn’t actually measure the volatility of the underlying asset…