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Bitcoin Sharpe Ratio Explained: Risk-Adjusted Returns vs Stocks and Gold

Chainmeter · ~2 min read

TL;DR

Sharpe Ratio = (return − risk-free rate) / volatility, over a rolling window (this site uses 90 days). It combines this site's own Volatility page output with return data rather than introducing a new data source, and has swung across an unusually wide range (roughly -4.8 to +8.2) reflecting Bitcoin's combination of large returns and large volatility in both directions.

The formula

Sharpe Ratio is a standard finance concept applied here to Bitcoin: it divides excess return (return above a risk-free rate) by the volatility taken to achieve it, over a chosen rolling window.

Sharpe Ratio = (Rolling Return − Risk-Free Rate) / Rolling Volatility

A higher Sharpe Ratio means more return was earned per unit of risk taken; a negative Sharpe Ratio means the asset lost money (net of the risk-free rate) over that window, regardless of how volatile it was getting there.

Why it's built from this site's own data

Rather than introducing a new external data feed, this site's Sharpe Ratio page combines the same 90-day annualized volatility already computed for the Volatility page with rolling return data — both already-verified quantities, reused rather than duplicated.

Why the historical range is so wide

Real historical Sharpe Ratio readings for Bitcoin have ranged from roughly -4.8 (during sharp drawdowns) to over +8.2 (during the fastest rallies) — an extremely wide band compared to traditional assets, where Sharpe Ratios rarely stray far outside roughly -2 to +3 even in extreme periods. That width is a direct consequence of Bitcoin's volatility being both larger and more variable than most asset classes, in both the numerator (returns) and denominator (volatility) of the ratio.

What a high Sharpe Ratio doesn't guarantee

A high trailing Sharpe Ratio describes a favorable risk-adjusted return over the specific window just measured — it says nothing about whether that combination of return and volatility will persist into the next window. Reading it as a forward guarantee is the same mistake as reading any trailing statistic as predictive.

Check where today's rolling 90-day reading falls against that real -4.8 to +8.2 historical range on the Sharpe Ratio chart.

FAQ

Why can Sharpe Ratio go so much more extreme for Bitcoin than for stocks?
Bitcoin's underlying returns and volatility are both larger in magnitude and more variable over time than most traditional assets, which mechanically produces a wider range of possible Sharpe Ratio outcomes when the two are combined into a ratio.
What risk-free rate does this site use?
A standard short-term reference rate is used as the risk-free baseline, consistent with conventional Sharpe Ratio calculations in traditional finance.
Is a negative Sharpe Ratio always bad?
It means the asset underperformed the risk-free rate over that specific rolling window — a description of that period, not a permanent state. Bitcoin's Sharpe Ratio has swung from deeply negative to strongly positive across relatively short spans historically.