Leonid's Bitcoin Sharpe Ratio

29 sept 2024

The Sharpe ratio is an old formula used to value the risk-adjusted return of an asset. It was developed by Nobel Laureate William F. Sharpe. In this case, I have applied it to Bitcoin with an adjustable look-back date.

The Sharpe Ratio shows you the average return earned after subtracting out the risk-free rate per unit of volatility (I've defaulted this to 0.02 [2%]).

Volatility is a measure of the price fluctuations of an asset or portfolio. Subtracting the risk-free rate from the mean return allows you to understand what the extra returns are for taking the risk.

If the indicator is flashing red, Bitcoin is temporarily overbought (expensive).
If the indicator is flashing green, Bitcoin is temporarily oversold (cheap).

The goal of this indicator is to signal out local tops & bottoms. It can be adjusted as far as the lookback time but I have found 25-26 days to be ideal.

30 sept 2024

Notas de prensa

Renamed and added comments.