Reportedly, those who are buying Ethereum considered the fact that Ethereum has outperformed its major rivals. This has been made possible by the surge in decentralized finance. However, the inability to scale is indeed a plague. Stiff competition from BSC and Avalanche is brewing versus Ethereum.

There is lot of hope on the technical adjustment EIP-1559, which aims to reduce the volatility of ethereum’s fees by introducing a mechanism to burn some of those transaction fees, which in turn will slow down token’s issuance.

When the Sharpe Ratio calculation, is done for a 4 year HODL period, it seems a sensible choice as it is sufficient time to cover a full bear to bull cycle for Bitcoin.

Banks calculate risk-weighted assets by multiplying “exposure amount by the relevant risk weight for the type of loan or asset.” A bank repeats this calculation for all of its loans and assets, and adds them together to calculate total credit risk-weighted assets.

Reportedly risk adjusted returns is defined as the ROI / Risk. Where the risk is calculated as the changeability (volatility) of the ROI. This is known as the Sharpe Ratio.

Reportedly, the Sharpe Ratio is one of the most used metrics in traditional finance to assess the risk-return performance of an asset. When comparing the risk-adjusted performance of crypto against Tech Stocks, ETH and BTC have been the best risk-adjusted assets over the last year.

The greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.

Investopedia states:  “The Sharpe ratio adjusts a portfolio’s past performance—or expected future performance—for the excess risk that was taken by the investor.

A high Sharpe ratio is good when compared to similar portfolios or funds with lower returns.  When investors are adding assets to diversify their portfolio, the assets need to have “low correlations.”

Low correlations decreases the overall return of the portfolio without sacrificing on the return. Thus, a portfolio that has a mix of assets which do not have high correlation with each other will help decrease portfolio risk.

Therefore, the greater the Sharpe Ratio the better the portfolio is risk adjusted.   The Sharpe ratio can be used to assess whether the returns are due to excess risk or due to smart investment decisions. 

The Sharpe ratio is also used to assess the overall risk-return characteristics when newer asset classes are included in the portfolio.

The downside to Sharpe ratio is that it assumes that the returns are normally distributed.