On Jan. 26, Glassnode’s Sharpe Signal hit its lowest level since March 2020. It dropped to 0.2531 from a high of 0.7042 on Jan. 10. However, by Feb. 11, as Bitcoin’s price crossed $48,000, the Sharpe Signal increased to 0.7371.
Graph showing Bitcoin’s Sharpe Signal from Jan. 1 to Feb. 12, 2024 (Source: Glassnode)
This sharp spike in the Sharpe Signal has profound implications for the crypto market, indicating a potentially lucrative phase for investors attuned to risk-adjusted metrics.
To fully grasp the significance of the signal’s fluctuations, it’s essential to understand the Sharpe ratio.
This metric, created by Nobel Laureate William F. Sharpe, measures the performance of an investment relative to its risk. The Sharpe ratio compares the expected returns of an investment to the risk-free rate of return, adjusting for the investment’s volatility. By doing this, the ratio provides a standardized measure of excess returns per unit of risk. Put simply, it measures how
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