BTC vs ETH analysis: how Sharpe ratios compare across recent cycles

Discover how Bitcoin and Ethereum have performed relative to risk, using Sharpe ratio comparisons across 2020‑2024 cycles, and learn why this matters for crypto investors.

• Comprehensive comparison of BTC and ETH Sharpe ratios over multiple market cycles.
• Insight into which asset offers better risk-adjusted returns in different phases.
• Practical takeaways for retail investors navigating Bitcoin‑Ethereum dynamics.

Over the past few years, cryptocurrency markets have oscillated between explosive bull runs and sharp corrections. While headline numbers often focus on price movements, a more nuanced measure— the Sharpe ratio—captures how much return an asset delivers per unit of risk. For the two dominant tokens, Bitcoin (BTC) and Ethereum (ETH), Sharpe ratios reveal subtle differences that can shape portfolio construction for intermediate investors.

In 2025, as institutional participation deepens and regulatory clarity improves, understanding the risk‑adjusted performance of BTC vs ETH becomes increasingly valuable. Whether you’re a long‑term holder or a tactical trader, knowing which asset historically compensated you better for volatility can inform your allocation decisions.

This article breaks down Sharpe ratios across recent cycles (2020‑2024), explains why they matter, and shows how the metrics translate into real‑world investment choices. It also links the discussion to tangible real‑world assets (RWAs) through a practical example: Eden RWA’s tokenized Caribbean luxury properties.

Background & Context

The Sharpe ratio, introduced by William F. Sharpe in 1966, measures risk‑adjusted return by dividing the excess return of an asset over a risk‑free rate by its standard deviation (volatility). A higher Sharpe indicates more efficient use of risk: you earn more per unit of volatility.

Bitcoin and Ethereum dominate global crypto market capitalization. Bitcoin is often viewed as “digital gold,” prized for scarcity and store‑of‑value characteristics, while Ethereum’s smart‑contract platform fuels DeFi, NFTs, and Web3 applications, attracting investors seeking higher growth potential.

Since 2020, the two assets have traversed multiple cycles— a bullish period (late 2020–early 2021), a correction (mid‑2021), a rebound (late 2021–early 2022), and a prolonged bear market (2022–2023) before a partial recovery in 2024. Regulatory developments such as MiCA in the EU, SEC scrutiny of tokenized securities, and global macro trends have shaped volatility and investor sentiment.

Key players include institutional custodians (Coinbase Custody, BitGo), DeFi protocols (Uniswap, Aave), and emerging RWA platforms (Eden RWA). Together they influence liquidity, price discovery, and risk perception.

How Sharpe Ratios Are Calculated for BTC & ETH

1. Data Collection: Daily closing prices from 01‑Jan‑2020 to 31‑Dec‑2024. Risk‑free rate taken as the average U.S. Treasury 3‑month yield over the same period (≈0.5%).
2. Return Calculation: Logarithmic daily returns: r_t = ln(P_t/P_{t-1}).
3. Excess Return: Subtract risk‑free rate from each return.
4. Volatility: Compute standard deviation of excess returns over the chosen window.
5. Simplified Sharpe Ratio: SR = (Mean Excess Return) / Volatility. Annualize by multiplying numerator and denominator by √252 (trading days).

Because BTC and ETH exhibit non‑normal return distributions, the classic Sharpe ratio may understate tail risk. Nevertheless, it remains a widely accepted benchmark for comparing risk‑adjusted performance.

Market Impact & Use Cases of Risk‑Adjusted Returns

During the early bull, BTC outperformed ETH in risk‑adjusted terms, likely due to its “store‑of‑value” narrative attracting risk‑averse capital. In contrast, during the 2021–22 bull, Ethereum’s Sharpe surpassed Bitcoin, reflecting heightened demand for DeFi and NFT use cases.

These patterns matter for portfolio construction: if an investor prioritizes stability, BTC may be preferable in rising markets; if seeking higher growth potential with tolerable risk, ETH could be more attractive during expansion phases.

Risks, Regulation & Challenges

• Regulatory Uncertainty: SEC’s evolving stance on tokenized securities and MiCA’s compliance requirements can impact liquidity and valuation of both BTC and ETH.
• Smart Contract Risk: While not directly tied to BTC, Ethereum’s reliance on code introduces potential vulnerabilities that could affect returns.
• Liquidity Constraints: Sharp sell‑offs often lead to temporary price freezes, increasing realized volatility.
• Market Sentiment: Crypto remains sentiment‑driven; macro events (e.g., Fed policy changes) can trigger abrupt swings.
• Data Quality: Historical anomalies or exchange outages can bias Sharpe calculations.

Outlook & Scenarios for 2025+

Bullish scenario: Institutional adoption of Ethereum Layer‑2 scaling solutions and increased DeFi activity drive sustained price appreciation. BTC continues to attract safe‑haven flows during macro turbulence, leading to complementary risk‑adjusted returns.

Bearish scenario: Regulatory crackdowns on crypto derivatives or a prolonged global recession dampen demand for both assets. Sharpe ratios may decline as volatility spikes without commensurate return growth.

Base case: 2025 sees gradual regulatory clarity, stable macro conditions, and incremental technological upgrades (e.g., Ethereum’s eventual move to Proof‑of‑Stake). BTC maintains a moderate Sharpe (~0.6–0.8), while ETH hovers around ~0.7–0.9 across medium‑term horizons.

Retail investors should monitor on‑chain metrics (active addresses, transaction volume) and off‑chain signals (institutional holdings, ETF approvals). These indicators often precede shifts in risk‑adjusted performance.

Eden RWA: Tokenizing French Caribbean Luxury Real Estate

Eden RWA offers a concrete example of how real‑world assets can be combined with blockchain to create yield‑generating investment opportunities. The platform tokenizes luxury villas across Saint‑Barthélemy, Saint‑Martin, Guadeloupe, and Martinique into ERC‑20 property tokens.

• Structure: Each villa is owned by a Special Purpose Vehicle (SPV) structured as an SCI or SAS. The SPV issues ERC‑20 tokens representing fractional ownership.
• Income Stream: Rental income, collected in stablecoins (USDC), is distributed automatically to investors’ Ethereum wallets via audited smart contracts.
• Experiential Layer: Quarterly, a certified bailiff draws a token holder for a free week’s stay in the villa they partially own. This adds utility and engagement beyond passive income.
• Governance: A DAO‑light model allows token holders to vote on key decisions (renovation, sale, usage) while maintaining efficient operations.
• Liquidity Pathway: Eden plans a compliant secondary market, offering potential liquidity for token holders in the future.

The Eden RWA platform exemplifies how real‑world asset exposure can be integrated into a crypto portfolio. For investors weighing BTC and ETH Sharpe ratios, adding an income‑generating RWA may diversify risk and enhance overall portfolio performance.

To learn more about Eden’s presale offerings, you can visit the official links below:

Eden RWA Presale Information | Explore the Presale Portal

Practical Takeaways

• Track Sharpe ratios quarterly to assess risk‑adjusted performance of BTC and ETH.
• Use on‑chain metrics (active addresses, transaction volume) as early indicators of market sentiment shifts.
• Consider adding RWA tokenized assets like Eden’s property tokens for yield diversification.
• Monitor regulatory developments in the EU and U.S. that may affect asset liquidity and pricing.
• Beware of over‑reliance on historical Sharpe ratios; future dynamics can differ due to structural changes.
• Ensure you understand the tax treatment of crypto dividends or rental income received via smart contracts.
• Always verify contract audits for any new tokenized asset before investing.
• Maintain a balanced portfolio: allocate BTC, ETH, and RWA tokens according to your risk tolerance and investment horizon.

Mini FAQ

What is the Sharpe ratio?

The Sharpe ratio measures an asset’s excess return relative to its volatility. It helps investors understand how much reward they receive per unit of risk taken.

Why does BTC often have a higher Sharpe in bull markets?

During bullish phases, Bitcoin attracts large institutional inflows seeking a digital store of value, which can increase returns while keeping volatility relatively controlled compared to more speculative assets.

Can I use the Sharpe ratio to predict future performance?

The Sharpe ratio is historical and assumes past risk‑return patterns will persist. It should be combined with other indicators for forward‑looking decisions.

What are the benefits of tokenizing real estate like Eden RWA?

Tokenization provides fractional ownership, transparent income distribution via smart contracts, potential liquidity through secondary markets, and utility features such as experiential stays.

Is investing in Ethereum riskier than Bitcoin?

Ethereum’s higher volatility reflects its broader use cases (smart contracts, DeFi). While it can offer higher returns, the associated risk is greater. Risk‑adjusted metrics like Sharpe help quantify this difference.

Conclusion

Analyzing BTC and ETH through the lens of Sharpe ratios offers a nuanced view of how each asset delivers return relative to its volatility across multiple market cycles. While Bitcoin has historically provided more stable risk‑adjusted gains during strong bull runs, Ethereum’s Sharpe often outperforms in growth‑oriented phases due to its expanding ecosystem.

For intermediate investors seeking balanced exposure, a diversified approach that blends BTC, ETH, and income‑generating RWAs—such as Eden RWA’s tokenized Caribbean villas—can help manage volatility while capturing multiple sources of return. By monitoring Sharpe ratios, on‑chain activity, and regulatory signals, you can make more informed decisions about where to allocate capital in the evolving crypto landscape.

Disclaimer

This article is for informational purposes only and does not constitute investment, legal, or tax advice. Always do your own research before making financial decisions.