Bitcoin Performs Better Than Gold, but Volatility Continues to be a Problem

Bitcoin (BTC) has surged more than 40% this year, outperforming major stock indices, bonds, gold and even oil, which has been rising recently due to geopolitical tensions.

According to Goldman Sachs, while Bitcoin’s performance is enviable, it does not adequately compensate for its volatility.
The ratio between Bitcoin’ s year-to-date return and its volatility is less than 10%, which is significantly less than gold’s best risk-adjusted return of nearly 20%.

This ratio reflects how much return an investment generates relative to its risk or volatility, with gold achieving a 28% increase in total return.

Interestingly, the only other investments with a lower return-to-volatility ratio than Bitcoin, as outlined in Goldman’s October 7 report titled “Oil on the Boil,” are Etherium’s native token, ETH, Japan’s TOPIX index, and the S&P GSCI energy index. This relatively low risk-adjusted score supports the long-held view of crypto skeptics, who argue that Bitcoin’s volatility prevents it from serving as a haven asset like gold.

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It also clarifies a recent market dynamic: when Iran fired missiles at Israel, tensions in the Middle East escalated, causing gold prices to rise while Bitcoin lost some of its value along with the stock markets.

Reduced risk-adjusted returns make speculative investments less attractive, which likely explains the growing interest in Bitcoin’s “cash-and-carry”arbitrage among traditional investors. This strategy allows traders to avoid the risks associated with price fluctuations while taking advantage of price differences between spot and futures markets.

Kosta Gushterov