Cryptocurrencies and stocks are considered risky investments, and the returns may not be particularly significant if you ignore the inherent volatility.
What happened: Bitcoin, the world’s leading cryptocurrency, has risen 43% since the beginning of the year, outperforming blue-chip stock indices such as the S&P500 and the Nasdaq-Compositewhich grew by 18.51% and 21.35% respectively.
However, the cryptocurrency has also seen sharp corrections this year, the most recent of which was the crash on August 5, when it fell below the $50,000 mark.
To get a more accurate picture, you should measure the excess return a Bitcoin investor makes by tolerating higher volatility.
Bitcoin’s Sharpe ratio, a measure of risk-adjusted return, was -1 at the time of writing, according to charting platform Trading View. This suggests that the expected return was lower than that of a risk-free investment, such as a government bond.
The Sharpe ratio was 4 at the beginning of the month, but the subsequent downturn reduced returns.
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On the other hand, AI powerhouse NVIDIA Corp. NVDAhad a Sharpe ratio of 2.29, which underscores better risk-adjusted performance at the time of writing.
Note that Nvidia has been a blockbuster stock market performer this year, up 166% year-to-date.
Why it is important: The varying performance reflects Nvidia’s growing attractiveness as a high-yield speculative investment.
While the early August crash hurt both Bitcoin and Nvidia, the AI-based stock recovered faster, gaining 8% on the week while the apex cryptocurrency gained 4.61%.
Price promotion: At the time of writing, Bitcoin was trading at 60,752.45, up 1.71% in the past 24 hours, according to data from Benzinga Pro. Nvidia shares closed 0.98% higher at $128.50 during Wednesday’s regular session.
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