I want to compare investment strategies in bitcoin.

So far I was using the money weighted rate of return and was comparing it between two different investors. The investor that has the biggest rate of return is the best investor.

I recently read a paper published in the Journal of Risk Finance, where they use the Sharpe ratio of the rate of return to compare two different investors strategy in Bitcoin, which is the same thing I'm trying to achieve.

Following that, I tried to understand what the Sharpe ratio is, and while I think I understand the purpose of it (ie assessing investment strategy by removing the volatility of the assets), I'm wondering if the trouble of computing it is worth the signal it would get me.

In other words, is the Sharpe ratios a better attribute to rank investors than the rate of return when comparing trading strategy for a single asset over the same period of time?

  • 2
    Buying Bitcoin is not an investment so you can't do investment analysis. Buying Bitcoin is betting that the public will want to keep buying it at higher prices even though there is no intrinsic value. Apr 28 at 11:56
  • @gaefan we are really past the point of just dismissing bitcoin and other crypto investments. It is unhelpful. It has a price and returns history so it can be characterized by the same moments of the distribution that any stock can, so they can easily calculate a Sharpe ratio like the question is asking, no discussion of intrinsic value required.
    – windwally
    Apr 28 at 14:34
  • 1
    Risk and Reward are very subjective topics, especially when it comes to Bitcoin. Suggest you look at Sharpe ratio, as well as Sortino ratio if you want to balance rate of return with downside risk. Apr 28 at 15:45

1 Answer 1


The Sharpe Ratio is used to see how effectively you are using risk. If your goal is to maximize average returns regardless of risk, then the Sharpe ratio is not useful for you.

Most investment managers don't necessarily want to maximize returns, they want to maximize returns with an appropriate level of risk. In many cases, it does no good if your expected return is high if there's a significant chance of large losses.

However, if you want to see which is investment has higher returns relative to its risk, then yes the Sharpe ratio is a good way of measuring that.

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