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

Gold has a significantly higher volatility ratio than bitcoin in 2024, according to analysis by Goldman Sachs.

Bitcoin (BTC) surged over 40% this year, outperforming major equity indices, fixed-income securities, gold and even oil, which surged on the back of geopolitical tensions.

However, its stellar performance in absolute terms is not sufficient to compensate for its volatility, according to data tracked by Goldman Sachs.

Bitcoin's year-to-date return to volatility ratio is under 2%, significantly lower than gold's industry-leading risk-adjusted return of around 3%. The ratio gauges the return an investment generates per unit of risk/volatility. Gold gained 28% in absolute terms.

In fact, only Ethereum's native token ether, Japan's TOPIX index and the S&P GSCI Energy Index have lower return to volatility ratios among non-fixed income growth-sensitive investments, according to a chart in Goldman's Oct. 7 note titled "Oil on the boil."

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

It also helps explain why gold rose and bitcoin fell alongside equity markets last week after Iran launched missiles at Israel, ratcheting up tensions in the Middle East.

The low risk-adjusted returns make directional bets unattractive and likely explain the popularity of the bitcoin cash and carry arbitrage among traditional institutions. The arbitrage strategy allows traders to bypass price volatility risks while profiting from price discrepancies between the spot and futures markets.

12:25 UTC: Corrects BTC and gold's YTD return to volatility ratios to less than 2% and around 3%, respectively.

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.