# Crypto risk metrics

### Measuring crypto volatility and Sharpe Ratios

Cryptocurrency prices are notorious for large upward and downward swings. In this post I discuss 2 crypto risk metrics - volatility and Sharpe ratios.

## Volatality

Volatility measures the price fluctuations of a crypto.

If a crypto has a higher volatility, its value can be spread out over a larger range. The value of volatile cryptos can massively change in a short period. Conversely, a crypto with lower volatility is likely to be stable and subject to smaller swings.

Volatility is usually measured using **variance** and **standard deviation**.

The chart below displays the volatility of **4 cryptos**:

Bitcoin (BTC),

Ether (ETH),

Tether (USDT), and

Ripple (XRP).

The volatality is measured over **4 periods**:

last 30 days,

last 90 days,

last 1 years and

last 3 years.

**Source: **Future Money Wallet

## Sharpe Ratio

Sharpe Ratio is the average return earned in excess of the risk-free rate per unit of volatility. While calculating the ratio, we subtract the risk-free rate from the mean return. This allows us to calculate profits associated with the risk-taking activity.

The risk-free rate of return is the return on an investment that has zero risk e.g. a Treasury bond.

A positive Sharpe Ratio implies that the returns are higher than the amount of risk.

The chart below displays the Sharpe ratios of **4 cryptos**:

Bitcoin (BTC),

Ether (ETH),

Tether (USDT), and

Ripple (XRP).

The Sharpe ratios are measured over **4 periods**:

last 30 days,

last 90 days,

last 1 years and

last 3 years.

Source: Future Money Wallet

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