Bitcoin Up 40% YTD, but Gold Wins on Risk-Adjusted Returns

Goldman Sachs’ impressive performance, as measured by the data they’ve gathered, doesn’t fully offset its high level of volatility.

Compared to gold, Bitcoin’s volatility-to-return ratio for this year is relatively low at less than 10%, with gold having a much higher industry-leading adjusted return of close to 20%. This ratio measures the investment return for each unit of risk or volatility. In absolute terms, gold has seen a 28% increase in value.

That relatively low risk-adjusted performance validates crypto skeptics’ long-held view that bitcoin is too volatile to become a safe haven like gold.

Last week, when Iran launched missiles towards Israel, escalating tensions in the Middle East, I observed a correlation between these geopolitical events and the performance of gold and bitcoin in the financial market. Specifically, gold experienced an uptick while bitcoin saw a downturn, mirroring the decline in equity markets. This relationship can be attributed to investors’ tendency to seek safe-haven assets like gold during times of uncertainty and potential conflict.

In simpler terms, because the returns on directional bets are not substantial enough after considering the risk, institutional investors tend to prefer Bitcoin cash and carry arbitrage. This strategy enables traders to avoid price fluctuations’ risks and capitalize on price differences between current (spot) and future market rates.